"Japan to Abolish Negative Interest Rates Within the First Half of Next Year (Comprehensive)"

Question to Global Economists
Proportion Responding 'End Within First Half' Rose from 31% Last Month to 50%
Inflation as a Variable in Monetary Policy Stance Change

There is a forecast that Japan will abandon its accommodative monetary policy stance by September next year. It is expected that after giving up the negative interest rate (-) in the first half of next year to control inflation, a policy shift will occur. Market funds are gradually moving in response to the view that Japan may abandon the policy stance it has maintained for the past decade.

Kazuo Ueda, Governor of the Bank of Japan
Photo by Reuters and Yonhap News Agency

According to a survey conducted by Bloomberg on the 13th (local time) targeting 46 economists, half of the respondents answered that the negative interest rate (-) policy would end within the first half of next year. This proportion increased from only 31% in last month's survey.

Inflation was cited as a variable in the change of monetary policy stance. Japan's consumer price inflation rate has remained in the 3% range for 12 consecutive months since August last year. The BOJ's inflation target is 2%. With the prolonged yen depreciation in the second half of this year and a significant increase in energy and raw material import costs, inflation is expected to accelerate further. Accordingly, respondents predicted that the BOJ could end its accommodative monetary policy by September next year.

Experts predicted this possibility based on recent hawkish remarks by BOJ Governor Kazuo Ueda. In an interview with Yomiuri Shimbun on the 9th, Governor Ueda stated that once inflation reaches a stage where the BOJ can be confident of achieving its 2% target stably, lifting the negative (-) interest rate could be considered as one of several options. Japan has kept short-term interest rates frozen at -0.10% for over seven years since 2016.

Izuru Kato, chief economist at Totan Research, a Japanese financial market research firm, said, "Governor Ueda seems to have hinted at the possibility of ending the negative interest rate policy because he cannot ignore the risk of yen depreciation and the resulting inflation rise."

However, all respondents predicted that there would be no significant policy changes at the September monetary policy meeting scheduled for the 21st. Regarding the outlook for the yield curve control (YCC) policy, which artificially adjusts the fluctuation range of long-term interest rates, most experts answered that the BOJ is more likely to fully abolish the policy rather than modify it. Among them, 9% of respondents expected this to happen in October.

The market is quickly betting on the BOJ's shift toward tightening. As of 9 a.m. on the 14th, Japan's 10-year government bond yield stood at 0.707%. Since the BOJ effectively raised the upper limit of long-term interest rate fluctuations to 1% in July, the 10-year government bond yield has fluctuated around 0.6%, breaking through 0.7% on the 11th. On the 12th, it rose to 0.721% intraday, marking the highest level in 9 years and 8 months.

The yen appeared to strengthen, falling to the 146 yen level after Governor Ueda's hawkish (monetary tightening preference) remarks, but it recovered to the 147 yen level within a day. As of 9 a.m. in the Tokyo foreign exchange market on the day, the dollar-yen rate was trading at 147.35 yen.

This content was produced with the assistance of AI translation services.