Bank of Japan board members view conditions as gradually falling into place for the central bank to begin normalizing its monetary policy, amid growing expectations that strong wage growth will ensure stable inflation, a summary of their opinions showed Wednesday.
At their Jan. 22-23 policy meeting, several members pointed to the possibility of the BOJ attaining its 2 percent inflation target. One said that the central bank will be able to begin policy normalization in a month or two, after examining the impact of a deadly earthquake that struck central Japan on New Year's Day.
The comments are the clearest sign yet that the dovish BOJ is preparing to shift from ultraloose monetary easing by ending negative interest rates or scrapping its yield cap program, even as the nine-member Policy Board made no changes at the January meeting.
Financial markets expect the central bank to end its negative rates as early as this spring, around the time when the outcome of closely watched "shunto" wage negotiations between management and labor unions will be known.
"Although achievement of the price stability target of 2 percent is not yet envisaged with sufficient certainty, it is necessary for the bank to start discussing the exit from the current monetary policy, since the achievement of the target is becoming more realistic," one member said.
Citing the prospect of wage growth and improvements in the economic and price situations, another said, it "seems that conditions for policy revision, including the termination of the negative interest rate policy, are being met."
The BOJ sets short-term interest rates at minus 0.1 percent and guides 10-year Japanese government bond yields around 0 percent. Within this framework, however, it allows the benchmark 10-year yield to rise above 1.0 percent to better reflect economic fundamentals and reduce the side effects of borrowing costs depressed at rock-bottom levels.
BOJ chief Kazuo Ueda has said the likelihood of achieving stable and sustained inflation of 2 percent is gradually increasing, with the focus on the strength of pay hikes this spring.
"There is a growing possibility that the wage growth to be agreed in this spring's labor-management wage negotiations will exceed that agreed last spring. Therefore, there is increasing momentum toward achieving a virtuous cycle between wages and prices," one member said.
The summary of opinions was compiled by the governor and comments were not attributed to individual members.
