Goldman Sachs Forecasts Bank Of Japan Rate Hike On Tuesday

Goldman Sachs has adjusted its forecast regarding the Bank of Japan (BOJ) raising interest rates, now predicting it to take place during the upcoming March meeting rather than in April as initially projected. Tomohiro Ota, the bank's senior economist for Japan, attributes this shift to stronger-than-expected salary increases observed during the annual "shunto" wage negotiations, coupled with reports in the Japanese media suggesting a departure from negative rates at the conclusion of the BOJ's March meeting.

Ota indicates that the BOJ may no longer find it necessary to wait for additional data or the quarterly Economic Outlook report in April to justify this policy change. While the majority of economists still anticipate a rate hike in April, an increasing number have adjusted their forecasts to March, citing signs of more robust wage negotiations this year.

In anticipation of the BOJ potentially abandoning its yield curve control policy, Ota anticipates that the central bank will refrain from specifying the size of its Japanese government bond purchases or the cessation of its ETF purchases. Furthermore, he expects the abandonment of the overshooting commitment, which involves increasing the monetary base.

Despite adjustments to its yield curve control policy over the past 16 months, with interest rates maintained at -0.1 per cent and an upper limit set for the 10-year Japanese government bond yield at 1 per cent, the BOJ continues to use these measures as a reference.

BOJ Governor Kazuo Ueda underscores the importance of this year's wage negotiations in fostering sustainable price increases, anticipating that higher wages will stimulate inflation driven by domestic demand. Recent reports indicate significant salary increments, surpassing last year's gains and marking the most substantial spikes in three decades.

Despite "core core inflation" exceeding its 2 per cent target for an extended period, the BOJ has upheld its ultra-loose monetary policy stance since 2016. If the BOJ proceeds with eliminating negative rates, it would signify a shift away from its longstanding monetary policy experimentation aimed at combatting deflation in the world's fourth-largest economy.