According to the sources, the Bank of Japan is laying the groundwork to end its period of negative interest rates by April and reassessing various aspects of its ultra-loose monetary policy. That being said, given the remaining risks, it is expected to proceed cautiously in response to any subsequent policy adjustments.
Signs of impending change emerged in a summary of discussions released last week after the Bank of Japan meeting in January. Some members of the policy board advocated for an immediate policy shift, with one describing the current juncture as a "golden opportunity" to gradually withdraw the stimulus.
During its recent meeting, the Bank of Japan opted to maintain ultra-low rates while acknowledging an increasing likelihood of sustainably achieving its 2% inflation target. This indicates a growing confidence in the favorable conditions for phasing out large-scale stimulus measures.
"If we get further evidence that a positive wage-inflation cycle will heighten, we'll examine the feasibility of continuing with the various steps we are taking under our massive stimulus program," Central Bank's Governor Kazuo Ueda told at a briefing following the BOJ meeting.
He also expressed confidence that the Bank of Japan will manage to steer clear of significant disparities following the end of negative rates and will take a cautious approach toward subsequent rate hikes.
Though Ueda refrained from providing a precise timeline for the transition, his remarks fueled investor assumptions that negative rates might conclude either in March or April.
"Piecing together its communication so far, it's fair to say the BOJ has its eyes set on April as the preferred timing of an exit," the insider shared.
Another source has confirmed that markets accurately interpreted the BOJ's message, alluding to the increasing anticipation of a near-term conclusion to negative rates.
Following the end of negative rates, the BOJ intends to release its grip on bond yields, albeit most of them, while persisting in bond purchases to prevent substantial yield spikes, as per the sources. Additionally, there may be a halt in the procurement of risky assets, although there are currently no intentions to sell its assets in the near future.
"When negative rates end, other parts of the framework will come under review," the third source added. All sources spoke on condition of anonymity due to the sensitivity of the topic under discussion.
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