Coming up from the Bank of Japan today is their expected decision to exit negative interest rate policy, after eight years. There is no set time for the statement, there never is, but past experience shows to expect it sometime in the 0230 to 0330 GMT time window.
This preview via a couple of snippets from Deutsche Bank research notes, who kick off with the big call that the “BoJ decision likely to overshadow the FOMC”:
- We expect the BoJ to revise its policy and abandon both NIRP and the multi-tiered current account structure and set rates on all excess reserves at 0.1%.
- We also see both the YCC and the inflation-overshooting commitment ending, replaced by a benchmark for the pace of the bank’s JGB purchasing activity.
DB reasoning:
- Last Friday saw Rengo (the country’s largest union group) announce the first tally of the results of this year’s shunto spring wage negotiation. That saw a higher-than-expected wage hike, and in the past the difference has been very small between the first tally results and the official data on the shunto wage increase. So that means it could well be the largest increase in Japanese wages since 1991, around the time the Japanese bubble burst.
- Our Japanese economist … thinks it makes the decision to take Japan out of negative rate territory tomorrow even more certain. He also suggests that wage setting behaviour is likely to have returned to the pre-1998 regime, in which inflation is reflected in wage increases.
On what’s ahead for Japanese fixed interest:
- upside potential to yields
- There had been a risk that a Japanese hiking cycle would be stopped out before it started by a US recession in late 2023 or early 2024. But with that risk now falling, it does pave the way for higher Japanese base rates and yields all starting from tomorrow.
Ueda’s press conference will follow at 0630 GMT.