TOKYO: The Bank of Japan seems to be leaning toward the idea of scrapping its negative interest rate policy at the upcoming two-day policy-setting meeting from March 18.

The central bank is growing increasingly confident that Japan can sustainably achieve its 2% inflation target through wage hikes and rising prices, with a view spreading that the ongoing “shunto” spring labor-management wage negotiations will produce bigger pay increases than the 2023 shunto talks.

The BOJ is at a crossroads over 10 years after it introduced the current massive monetary easing regime under then Governor Haruhiko Kuroda in April 2013. The negative interest rate policy was added to the regime in 2016.

“We are finally in a situation where the 2% inflation target is in sight,” Hajime Takata, a member of the BOJ’s Policy Board, said in a speech delivered Thursday in the western city of Otsu, stressing that the scene is nearly set to start monetary policy normalization.

His remark ignited speculation among market players that the BOJ will revise its monetary policy soon, leading to yen buying and a rise in interest rates Thursday.

At a press conference after the speech, Takata avoided a clear response when asked whether he supports the idea of ending the negative interest rate policy at the March 18-19 meeting.

But he also said, “We’d like to handle the matter either in March or at the next (meeting set for April).” He thus hinted that the BOJ may raise interest rates for the first time in 17 years as early as the March meeting.

Japan’s core consumer price index, which excludes often volatile fresh food prices, rose 2.0% year on year in January, exceeding or matching the inflation target for 22 consecutive months.

The overall CPI, including fresh food prices, climbed 2.2%, as a rise in services prices, which often reflect wage hikes at service providers, outpaced goods price growth for the first time in 34 months.

Some large companies have already fully accepted their labor unions’ demands in this year’s shunto talks.

On Feb. 22, BOJ Governor Kazuo Ueda said that the Japanese economy is “in a state of inflation, not deflation.”

He also indicated that the virtuous cycle of wage and price rises will strengthen.

JIJI Press