Bank of Japan Mulls Ending Negative Interest Rate Policy in Early 2024, Analyst Claims

The Bank of Japan (BOJ) is reportedly considering an adjustment to its monetary policy which may involve the lifting of negative interest rates as early as January, according to Chotaro Morita, chief strategist at All Nippon Asset Management Co. The central bank is currently deliberating its monetary strategy in what is its final policy meeting for the year, with a critical announcement expected on the following Tuesday.

Negative Rate Regime's Potential End

BOJ's reputation as the last major central bank maintaining a negative rate regime could change based on decisions from this meeting. Speculation is growing about a potential shift in policy earlier rather than later, especially considering recent comments by BOJ Governor Kazuo Ueda about upcoming challenges and Deputy Governor Ryozo Himino discussing scenarios post rate hikes.

Factors Influencing the BOJ's Decision

While the expectation of an interest rate increase by April is widespread among forecasters, Morita hinted that a hike may occur within the January to April timeframe, primarily to afford the BOJ future policy flexibility. He also noted that the BOJ may offer hints about its intentions without enacting a hike this month. Nonetheless, market indicators like Overnight Index Swaps (OIS) suggest there is a significant chance of a rate increase in January.

Conditions Affecting Implementation

Morita further explains that rapid yen appreciation could deter a January rate hike. If the yen strengthens significantly against the dollar, landing in the 120-130 range, the BOJ might delay increasing rates. He forecasted a rate raise to 0.25% by 2024, up from the current -0.1%.

Future Policies Post-Rate Change

Post-lifting the negative rates, the BOJ might still keep its yield curve control strategy, but adjustments to its inflation overshoot commitment would be essential. Political shifts within Japan, such as the diminishing influence of former prime minister Shinzo Abe's faction, may also have given BOJ policymakers more room to reconsider their approach to monetary stimulus.

BOJ, Interest, Economy