Highlights
A majority of the Bank of Japan's nine-member board agreed that large-scale monetary easing measures including yield curve control and the negative short-term interest rate target have fulfilled their roles, according to the summary of the bank's March 18-19 meeting. At the same time, some members noted that the financial environment should remain accommodative for now even if the negative 0.1 percent target for the overnight rate is lifted, and thus a policy shift would not cause any turbulence in the financial markets.
"Based on recent data and other sources, it can be judged that it is now within sight that the price stability target (of 2 percent) will be achieved toward the end of the projection period (March 2026) of the January 2024 Outlook Report," the summary said."In this situation, large-scale monetary easing measures, including the yield curve control framework and the negative interest rate policy, have likely fulfilled their roles."
Unlike other central banks, the BoJ is not raising rates to cool off an overheating economy or elevated consumer inflation. It is taking the first step toward unwinding massive cash injections into the financial system after nearly 11 years of trying to reflate the economy and turn around the deflationary mindset among households and businesses. Before the meeting, both Governor Kazuo Ueda and Deputy Governor Shinichi Uchida had said financial conditions would remain accommodative even after negative short-term interest rates were lifted.
The provisional aggregate results for the agreed wage growth rate compiled by the Japanese Trade Union Confederation (Rengo) have been higher than expected, the summary said, adding that wages are projected to be raised for a wide range of firms, according to anecdotal information from firms gathered through the Bank's Head Office and branches.
"With corporate profits being at high levels, it is likely that relatively large wage hikes and a moderate rise in services prices will coexist. Prices are projected to be at around 2 percent while gradually transitioning to a desirable state in which they are supported by wages," the summary said.
"Shifting to a framework in which the Bank guides the short-term interest rate as a primary policy tool from one that deployed all unconventional instruments -- in other words, to a normal phase of monetary easing from the 'new phase of monetary easing,' namely, from quantitative and qualitative monetary easing (QQE) introduced in 2013 -- is quite possible without causing short-term shocks, and positive effects can be expected in the medium to long term," one member said.
"It is important to clearly communicate through the use of various methods that the changes in the monetary policy framework proposed at this MPM will not be a regime shift toward monetary tightening, but rather a part of efforts to achieve the price stability," said another.
Long-term interest rates have been stable under the more flexible conduct of yield curve control, the summary said."In addition, as a result of the Bank's communication thus far, there is a widespread understanding in financial markets that, even if the Bank were to terminate the negative interest rate policy, accommodative financial conditions would be maintained for the time being," one member said."Considering such factors, there is a low possibility that the changes in the policy framework proposed at this MPM will cause large fluctuations in the markets."
At the March meeting, the board decided in a 7 to 2 vote to raise the negative short-term rate target to a range of zero to 0.1 percent, the bank's first rate hike in 17 years, and to end yield curve control, which means the bank no longer targets the yield on 10-year Japanese government bonds.
The board also decided in an 8 to 1 vote to continue its purchases of Japanese government bonds (JGBs)"with broadly the same amount as before (about 6 trillion yen a month)."
"That said, in conducting the purchases, it is necessary that they continue to be determined flexibly by the Bank's market operation desk while taking account of market developments," one member said."Thus, it is appropriate to conduct the purchases with some upper and lower allowances of, for example, about plus and minus 1-2 trillion yen."
"JGB purchases will be conducted from the perspective of avoiding rapid fluctuations in long-term interest rates, not as an active monetary policy tool," another member said."In doing so, it is important to promote recovery in market liquidity while letting interest rates be determined by the market as much as possible."
"Based on recent data and other sources, it can be judged that it is now within sight that the price stability target (of 2 percent) will be achieved toward the end of the projection period (March 2026) of the January 2024 Outlook Report," the summary said."In this situation, large-scale monetary easing measures, including the yield curve control framework and the negative interest rate policy, have likely fulfilled their roles."
Unlike other central banks, the BoJ is not raising rates to cool off an overheating economy or elevated consumer inflation. It is taking the first step toward unwinding massive cash injections into the financial system after nearly 11 years of trying to reflate the economy and turn around the deflationary mindset among households and businesses. Before the meeting, both Governor Kazuo Ueda and Deputy Governor Shinichi Uchida had said financial conditions would remain accommodative even after negative short-term interest rates were lifted.
The provisional aggregate results for the agreed wage growth rate compiled by the Japanese Trade Union Confederation (Rengo) have been higher than expected, the summary said, adding that wages are projected to be raised for a wide range of firms, according to anecdotal information from firms gathered through the Bank's Head Office and branches.
"With corporate profits being at high levels, it is likely that relatively large wage hikes and a moderate rise in services prices will coexist. Prices are projected to be at around 2 percent while gradually transitioning to a desirable state in which they are supported by wages," the summary said.
"Shifting to a framework in which the Bank guides the short-term interest rate as a primary policy tool from one that deployed all unconventional instruments -- in other words, to a normal phase of monetary easing from the 'new phase of monetary easing,' namely, from quantitative and qualitative monetary easing (QQE) introduced in 2013 -- is quite possible without causing short-term shocks, and positive effects can be expected in the medium to long term," one member said.
"It is important to clearly communicate through the use of various methods that the changes in the monetary policy framework proposed at this MPM will not be a regime shift toward monetary tightening, but rather a part of efforts to achieve the price stability," said another.
Long-term interest rates have been stable under the more flexible conduct of yield curve control, the summary said."In addition, as a result of the Bank's communication thus far, there is a widespread understanding in financial markets that, even if the Bank were to terminate the negative interest rate policy, accommodative financial conditions would be maintained for the time being," one member said."Considering such factors, there is a low possibility that the changes in the policy framework proposed at this MPM will cause large fluctuations in the markets."
At the March meeting, the board decided in a 7 to 2 vote to raise the negative short-term rate target to a range of zero to 0.1 percent, the bank's first rate hike in 17 years, and to end yield curve control, which means the bank no longer targets the yield on 10-year Japanese government bonds.
The board also decided in an 8 to 1 vote to continue its purchases of Japanese government bonds (JGBs)"with broadly the same amount as before (about 6 trillion yen a month)."
"That said, in conducting the purchases, it is necessary that they continue to be determined flexibly by the Bank's market operation desk while taking account of market developments," one member said."Thus, it is appropriate to conduct the purchases with some upper and lower allowances of, for example, about plus and minus 1-2 trillion yen."
"JGB purchases will be conducted from the perspective of avoiding rapid fluctuations in long-term interest rates, not as an active monetary policy tool," another member said."In doing so, it is important to promote recovery in market liquidity while letting interest rates be determined by the market as much as possible."
Market Consensus Before Announcement
The summary of the Bank of Japan's March 18-19 meeting is expected to show board members discussed the timing of ending the seven-year-old yield curve control framework and lifting the overnight interest rate target from the minus 0.1 percent as part of the bank's process to reduce the costs of providing large-scale monetary stimulus to the economy.
The nine-member board decided in a 7 to 2 vote to raise the negative short-term rate target to a range of zero to 0.1 percent, the bank's first rate hike in 17 years, and to end yield curve control, which means the bank no longer targets the yield on 10-year Japanese government bonds. Board member Toyoaki Nakamura, a former Hitachi executive, voted against the rate hike, urging to wait until the bank can confirm smaller firms also have the ability to raise wages. Asahi Noguchi, a former economics professor, also dissented, arguing ending the negative rate and yield curve control at the same time could disrupt financial conditions. The board also decided in an 8 to 1 vote to continue its purchases of JGBs"with broadly the same amount as before (about 6 trillion yen a month)." In case of a rapid rise in long-term rates, the bank will"make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchases of JGBs." Board member Nakamura voted against the change in the way the bank targets long-term rates.
Many board members believe that the risk of Japan's economy slipping back into deflation has been reduced and inflation is likely to be led by sustained wage hikes, instead of a spike in import costs, following recent news that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
"Spring wage talks became an important factor for our judgment, as we had predicted," Governor Kazuo Ueda told a post-meeting news conference on March 19. He also said anecdotal evidence gathered through interviews with firms conducted by the bank's Tokyo head office and regional branches showed over a half of those informally surveyed firms indicated they would raise wages. Asked about the pace of further rate hikes, Ueda replied,"It depends on the economic and price conditions but based on the outlook we have now, I think we can avoid a path of a drastic increase."
The nine-member board decided in a 7 to 2 vote to raise the negative short-term rate target to a range of zero to 0.1 percent, the bank's first rate hike in 17 years, and to end yield curve control, which means the bank no longer targets the yield on 10-year Japanese government bonds. Board member Toyoaki Nakamura, a former Hitachi executive, voted against the rate hike, urging to wait until the bank can confirm smaller firms also have the ability to raise wages. Asahi Noguchi, a former economics professor, also dissented, arguing ending the negative rate and yield curve control at the same time could disrupt financial conditions. The board also decided in an 8 to 1 vote to continue its purchases of JGBs"with broadly the same amount as before (about 6 trillion yen a month)." In case of a rapid rise in long-term rates, the bank will"make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchases of JGBs." Board member Nakamura voted against the change in the way the bank targets long-term rates.
Many board members believe that the risk of Japan's economy slipping back into deflation has been reduced and inflation is likely to be led by sustained wage hikes, instead of a spike in import costs, following recent news that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
"Spring wage talks became an important factor for our judgment, as we had predicted," Governor Kazuo Ueda told a post-meeting news conference on March 19. He also said anecdotal evidence gathered through interviews with firms conducted by the bank's Tokyo head office and regional branches showed over a half of those informally surveyed firms indicated they would raise wages. Asked about the pace of further rate hikes, Ueda replied,"It depends on the economic and price conditions but based on the outlook we have now, I think we can avoid a path of a drastic increase."
Definition
The Bank of Japan releases the Summary of Opinions expressed by its nine policy board members six business days after each Monetary Policy Meeting.
Description
The BoJ holds eight MPMs a year, in January, March, April, June, July, September, October and December. The BoJ began publishing the summary in 2016 to provide a brief look at what was discussed at the latest meeting as part of its efforts to increase the transparency of the conduct of monetary policy. The governor of the bank holds a news conference at 1530 JST (0630 GMT), a few hours after the release of the monetary policy statement, to discuss the board's policy decision and assessment of the economic and financial conditions. More details become available when the summary is published. Before 2016, market participants had to wait until the release of the minutes, which comes a month or two after the meeting because the board must approve the minutes at the following meeting before its release. The summary is edited by the governor and does not require the board's approval.
