Japan to break free from negative rate policy after wage hike: analyst

The negative rate environment is likely to end in April 2024.

The Bank of Japan (BOJ) may just finally exit its negative interest rate policy with the upcoming growth in wages, according to Fitch Ratings.

The ratings agency expects that the negative rate environment will likely end in April.

The upcoming spring wage negotiations, or Shunto, is expected to result in higher wage increases compared to 2023. Some big employers have reportedly already agreed to union demands.

This, in turn, is expected to encourage Japan’s central bank to embark on gradual policy normalisation in the coming months. The BOJ has emphasized the importance of the Shunto outcome in its policy thinking, according to Fitch.

ALSO READ: Japan banks’ domestic assets at $9.4t in January

“It is increasingly evident that, amidst healthy corporate profits, more companies are passing on higher labour costs to customers, suggesting that Japan is finally shaking off its deflationary mindset,” it added.

The labour share of income has also increased, suggesting a more inflationary environment.

​“Unlike central bankers in other developed markets, the BOJ does not fear second-round effects. Quite the opposite. We expect the BOJ to take advantage of this reflationary environment to exit negative rates, but the policy stance will remain very accommodative through 2025,” said Jessica Hinds, director at Fitch Ratings.