The possibility of the Bank of Japan (BOJ) altering its policy in March has become a focal point, raising alertness among traders and economists, according to a report by Bloomberg on Thursday.
Traders, once confident in the BOJ maintaining its negative interest rate policy, now estimate a 34% chance of a shift by the March meeting. Economists, who previously considered a move in March unlikely, are now regarding it as a “live” event.
A Bloomberg survey of 15 Tokyo-based economists revealed that seven believe there is a chance of the BOJ ending negative interest rates in March. Three see it as highly likely, and four consider it possible. However, most economists still anticipate a policy shift in April. Market prices indicate an 85% chance of a hike by the April meeting.
Experts caution that short- and medium-term bond yields may not adequately reflect the possibility of a policy change. If negative interest rates are lifted in March, bond yields could unexpectedly surge, potentially strengthening the yen and impacting longer-maturity debt.
The rise in yields in Japan could prompt institutional investors to retain more funds within the country, potentially influencing global bond markets. Despite some signs of change in the market, traders have scaled back their bets, contrasting with the more open stance of BOJ officials regarding a policy shift.
Uncertainty surrounding central bank actions, such as potential rate cuts by the Federal Reserve, adds complexity to market dynamics. Recent statements from BOJ policymakers suggest readiness for a rate move, with Governor Kazuo Ueda expressing confidence in achieving stable inflation, and Deputy Governor Shinichi Uchida discussing policy options post-negative rates.
BOJ board member Hajime Takata’s remarks further fueled speculation of a near-term rate hike, suggesting that the BOJ’s price target is within reach. Some economists interpret these signals as indicating an imminent rate hike, suggesting that market indicators like bond yields and the yen may not fully reflect this possibility.
Experts argue that it is time for the BOJ to normalize policy, as radical monetary easing measures are deemed unnecessary.
