Is spring fighting the deciding factor? The impending cancellation of negative interest rates [Economy column]

On the 15th, the Rengo announced the status of responses to this year's spring struggle.

The average wage increase rate for the labor unions of the 771 companies for which management responded was 5.28%, the first time in 33 years that it has exceeded 5%.

The Bank of Japan will hold a monetary policy meeting on the 18th and 19th.

The Bank of Japan has said that if it is possible to achieve the 2% price stability target accompanied by wage increases, it will consider changing its large-scale monetary easing measures, including ending negative interest rates.

With executives' perceptions of prices and wages steadily changing, will the results of this spring labor strike be the decisive factor that will push them to make a decision?

(Bank of Japan reporting team)

Is policy change approaching?

"Changing Perceptions"

``The probability that the 2% price stability target will be achieved is gradually increasing.''

Press conference after the monetary policy meeting on January 23.

Bank of Japan Governor Ueda made remarks that signify a step forward toward policy change in line with the language in the outlook report.

In the market, there is a growing expectation that the Bank of Japan will take policy changes at its decision meeting in March or April, including ending negative interest rates, which would be the first interest rate hike in 17 years.

The ``Main Opinions'' of the January meeting, which released the statements of the nine members who decide on policy, also revealed that discussions toward policy change are becoming more active.

``Achieving the price stability target is becoming a reality, so it is necessary to intensify discussions on the exit.'' ``

The requirements for policy revisions, including ending negative interest rates, are being met.''

In February, Deputy Governor Uchida mentioned a concrete menu of policy changes.

Deliberation committee members, who are policy-making members, continued to make statements suggesting that a change in policy was on the horizon.

January 23, Governor Ueda's press conference

: ``We believe that the probability that this outlook will be realized toward the 2% price stability target continues to increase little by little.''

February 8th Nara City Deputy Governor Uchida's speech

: ``Even if negative interest rates were lifted, it would be difficult to imagine a path where interest rates would continue to rise after that, and an accommodative financial environment would have to be maintained.'

' We have been purchasing ETFs and J-REITs, but when it becomes clear that the 2% target will be achieved sustainably and stably, and we decide to revise the large-scale easing, it will be natural to stop these purchases as well.''

February 29th Otsu City lecture by Deliberative Committee member Hajime Takada

: “We are finally in a situation where we can see the achievement of the 2% price stability target.There is a virtuous cycle of sustained wage increases in response to price increases, and wages and prices do not rise. ``We are at an inflection point where the way we think about things changes.'' ``A gear shift from today's extremely strong monetary easing, for example, the lifting of the yield curve control framework, the lifting of negative interest rates, and the state of overshoot-type commitments. It is also necessary to consider ways to respond swiftly and flexibly, including responding to

March 7th Matsue City speech by Junko Nakagawa, council member: ``

We believe we can see a virtuous cycle between wages and prices.We are seeing clear signs of change in corporate attitudes toward wage setting, and the realization of the 2% price stability target.'' We are making steady progress toward that goal.”

Signs of a virtuous cycle triggered by an “external shock”

Why are the members' perceptions changing?

The reason is that people are beginning to see a ``virtuous cycle'' in which prices rise stably as wages rise.

Since the 1990s, the Japanese economy has fallen into a state of deflation, with prices continuing to fall, following the bursting of the bubble and the financial crisis.

The Bank of Japan has taken monetary easing measures in response to this.

Inaugural press conference by then-President Kuroda

Since 2013, when Governor Kuroda was in charge, the central bank has continued to implement large-scale easing measures called ``another dimension,'' but they have not been able to achieve the price target.

Two "external shocks" - the new coronavirus and the invasion of Ukraine - brought about such major changes in prices.

In the process of resuming economic activity, which has plummeted due to the coronavirus pandemic, there has been chaos due to supply shortages around the world, and the prices of various goods have risen.

Furthermore, energy and grain prices skyrocketed due to Russia's invasion of Ukraine in February last year, and combined with the depreciation of the yen, prices rose to record levels, directly impacting people's lives.

Towards an economy where prices and wages “rise”

It can be said that the negative price rise was caused by cost-pushing that originated overseas, but what was spreading behind the scenes was a change in the price-setting behavior of companies.

Faced with soaring prices for fuel and raw materials, many companies have taken steps to pass on costs.

In an era when prices were not rising, business owners were cautious about passing on prices, fearing that even if costs rose, sales would fall.

This gradually led to a mindset that ``we can raise prices.''

The rate of increase in the consumer price index has been at or above the Bank of Japan's target of 2% for 1 year and 10 consecutive months through January this year.

And wages have also started to change.

Companies have improved their profits through price pass-through.

Amidst a labor shortage, there is a strong motivation to secure talented workers, and last year's spring labor union resulted in the highest wage increases in about 30 years.

Deputy Governor Uchida summarized this process in his speech mentioned above.

February 8th Nara City lecture by Deputy Governor Uchida

: ``Although it was triggered by cost-pushing from overseas, wages have actually increased, and I feel that the foundations are now in place for the Japanese economy to change.We need to break away from the ways of thinking and practices of the deflationary period.'' However, there is an opportunity to create an economy where wages and prices rise, and where businesses develop business models that allow for this, and companies that are successful in doing so are chosen by workers, and where the growth potential of the economy as a whole increases. "It's coming."

Pulling the trigger...

Expectations of a policy shift increase in the market along with statements from Bank of Japan executives.

Meanwhile, President Ueda has made almost no changes to his statements since the January meeting.

1st of this month.

Governor Ueda, who attended an international conference in Brazil, said at a press conference, ``I don't think we've reached that point yet as to whether we will be able to predict the price target.''

Since then, he has repeated the phrase from the January meeting that ``the certainty of realization is increasing.''

While some believe that the governor may be cautious about changing policy, others within the Bank of Japan believe that ``the governor, who is in a position to summarize the opinions of the committee members, does not express his personal views.''

It is true that when interviewing the nine members, their views and stances on the economy and prices differ to a greater or lesser extent.

Some members maintain a cautious attitude, thinking that they still have a long way to go to achieve their goals.

▽ GDP with weak personal consumption

▽ Real wages continue to be negative

▽ Results of wage increases for small and medium-sized enterprises have not been released

▽ Slowdown in the Chinese economy

▽ More confirmation is needed on the spillover from wages to prices...

Under these circumstances, President Ueda once again emphasized the trends of this year's spring labor movement at the Diet session on the 13th, which was about to take place.

"The trends in the spring labor-management negotiations are a major point. We will make an appropriate decision after comprehensively examining the published data, hearing information, etc."

Governor Ueda also said in an interview with NHK late last year that wage increases in the spring labor unions would be an important factor in changing policy.

There is also a view that the results of this year's high level of responses, which I introduced at the beginning, will be a factor that will support the decisions of the president and the executive branch.

Will it be “the third time being honest”?

Looking back over the past 30 years, the Bank of Japan has been on the brink of raising interest rates twice, in 2000 and from 2006 to 2007, but both of them lasted for a long time due to factors such as the impact of overseas economies. There is also the bitter experience of making policy changes without a virtuous cycle taking root.

Will the meeting starting on the 18th open the door to "third honesty"?

The nine members will have a final discussion.

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