BOJ will likely ditch negative rates and yield curve control next week – MUFJ

The Bank of Japan meets on March 18 and 19. Like the subheading says, the news flow on a likely tightening of policy is relentless.

The Nikkei had this:

• Bank of Japan to end negative interest rates on Tuesday with rates to rise to 0.00-0.10% … Yet-another Bank of Japan leak

Bloomberg (gated) has canvassed MUFG (Mitsubishi UFJ Financial Group is a Japanese financial services group that is the largest in the world measured by assets) and reports this:

• “Given the stronger-than-expected wage talk outcome, the BOJ will likely ditch negative rates and yield curve control next week,” said veteran BOJ watcher Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
• “The BOJ could have waited until April if the wage talk outcome wasn’t this strong. But with markets already pricing in the chance of an exit, it would actually be a surprise if the bank forgoes ditching negative rates next week,” she said.

From a separate report, on Rengo, a federation of unions, saying its members have so far secured deals averaging 5.28%, a figure that far outpaces the initial 3.8% tally from a year ago and easily the highest in 30 years:

• “This clears the last hurdle for the BOJ and I think it will scrap its negative rate next week and make a shift toward policy normalization,” said Taro Saito, head of economic research at NLI Research Institute. “If they stand pat now, markets will get volatile and the yen is likely to plunge.”

And, Reuters:

• Upon exiting its negative rate policy, the BOJ will also ditch its bond yield control and discontinue purchases of risky assets such as exchange-traded funds (ETF), sources have told Reuters

I did convey more cautious thoughts from UBS:

• Bank of Japan won’t tighten policy next week – here’s why they’ll wait until April

But I think they may be standing in front of a freight train.

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The BOJ announcement will come sometime after 0230 GMT on Tuesday 19 March. The Bank doesn’t have a firmly scheduled time for its meeting statement, it never does.

This article was written by Eamonn Sheridan at www.forexlive.com.