A summary of opinions from the Bank of Japan’s (BOJ) recent meeting reveals a division among policymakers regarding the potential exit from ultra-loose monetary policy. While the board reached a consensus to maintain significant stimulus measures for the time being, some members called for a more in-depth debate on planning for a future exit.
The summary highlights that the policymakers were split between those exercising caution about raising interest rates and others who recognized the need to prepare for an eventual exit. One member stated that the timing of normalizing the BOJ’s ultra-easy policy was “getting closer,” citing the increasing likelihood of achieving the bank’s 2% inflation target sustainably.
However, another member expressed the view that the BOJ could wait until the outcome of next year’s spring wage talks before considering policy changes. This member argued that even with a significant rise in wages, inflation was unlikely to sharply exceed the 2% target.
At the December 18-19 meeting, the BOJ opted to maintain its ultra-loose policy settings and retained its dovish guidance, committing to additional monetary easing steps as needed. The summary also revealed opinions calling for more debate on the timing and appropriate pace of rate hikes in the future.
The central bank’s dovish forward guidance may not necessarily constrain it from changing interest rates, according to one opinion. Market expectations suggest the BOJ might end its negative rate policy next year, with some anticipating a policy shift as early as January or April.
The prolonged period of inflation above 2% in Japan, coupled with firms signaling readiness to continue raising wages, has increased the likelihood of the BOJ gradually moving away from its dovish stance among global central banks. BOJ Governor Kazuo Ueda indicated that the probability of achieving the inflation target was “gradually rising,” hinting at the potential for a policy shift. The BOJ’s next policy-setting meeting is scheduled for January 22-23.