Is Japan's Negative Interest Rate Policy Nearing Its End?

Bank of Japan’s Board Member Hajime Takata sent a strong signal that the possibility of ending the negative interest rate policy is gaining momentum.

These comments have pushed both the yen and government yields higher.

“There are uncertainties for Japan’s economy, but my view is that the price target is finally coming into sight,” Takata said in a speech to local business leaders in Shiga, western Japan Thursday.

Read More: Japan’s Inflation Falls to 2% in January – Lowest in 22 Months

Here’s what Takata emphasised on:

• “It’s fine to shift the gear one notch lower” to align with economic conditions.
• He echoed sentiments previously expressed by Governor Ueda and Deputy Governor Uchida.
• Even if the bank ends the negative rate, policy measures would remain supportive.
• He assured that they are not looking to hiking over and over.

Was this reflected on the Yen?

The yen strengthened to 149.76 versus the dollar – its strongest level in over a week, compared to 150.44 previously following Takata’s comments, as investors adjusted their positions in anticipation of a potential reduction in the interest rate gap between Japan and the U.S.

• Similarly, government bond yields experienced a slight uptick.
• However, yen’s gains were tempered when Takata assured that policy settings would remain loose, which in turn led to a partial reversal of its appreciation.

Did you know? Japan’s stock market hit all-time high last week.

March Policy Shift?

Now regarding the possibility of a policy shift in March, the board member expressed caution in his assessment.

Potential actions at the upcoming meeting are to be considered, taking into account his observation that the price target is coming into sight.

Takata is seen as a neutral member out of the nine board members. His comments and views will likely reinforce speculation in the markets regarding the likelihood of the bank implementing Japan’s first rate hike since 2007 in coming months.

The upcoming March gathering may attract increased attention among BoJ watchers as the probable timing for any policy adjustments. While the majority of economists have placed their bets on the move happening in April, the March meeting is gaining traction as a potential opportunity for action.

What to watch: Now that yen has gained on BoJ comments, it is recommended to keep an eye out on the currency for any upcoming movements.

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