Bank of Japan policy update: A question of when, not if
- Inflation has risen considerably in Japan, with CPI reaching a 41-year high of 4.3% in January. Improving wage dynamics indicate price rises may be more sustained compared to previous episodes.
- Shunto – Japan’s spring wage negotiations – are pointing towards a 30-year record in terms of wage increases. Improving wages should prompt the Bank of Japan (BoJ) to start removing its accommodative monetary policy.
- The Bank’s yield curve control (YCC) was put in place in September 2016 to prevent long-term yields from falling too low, reducing pressure on the financial system. But higher inflation is putting pressure on this policy.
- We expect the BoJ – and its new Governor – to cautiously and gradually adjust policy. We expect it to reduce the targeted tenor of its YCC and delay any interest rate hikes to 2024.