① Former Bank of Japan official Tsutomu Watanabe said that the central bank's interest rate hike was not as anxious as the market thought; ② he expected the Bank of Japan to take action as early as October; ③ Watanabe was a potential candidate for the position when the Bank of Japan became vacant last year.
Finance Association, April 1 (Editor: Huang Junzhi) Tsutomu Watanabe, a former Bank of Japan official and one of Japan's leading inflation experts, said a few days ago that the Bank of Japan may slow down before raising interest rates again, and may act as early as October.
The professor of economics at the University of Tokyo said, “I don't think the next step will come so soon. The Bank of Japan may adjust policies by observing data and will not take irrational actions.”
Watanabe's views are in stark contrast to those of some Bank of Japan observers. Observers pointed out that as the yen exchange rate falls near a 34-year low, the Bank of Japan may act quickly.
According to reports, Watanabe was a potential candidate for the post of Bank of Japan governor when it became vacant last year. The professor now anticipates that the central bank will take some time to measure the inflation trend because the current price trend is not that strong.
He further said that the Bank of Japan's decision to end negative interest rates last month did not appear to be an evidence-based policy move because service prices are still somewhat sluggish, as a key inflation data was only released a few days after the March 18-19 meeting.
“I thought, what's going on with this? It doesn't rely on data at all.” He said, “There must be some important reasons for us to hurry. A weak yen is unlikely to be a catalyst because the Bank of Japan can send hawkish signals to resolve the issue if it wants to.”
According to Watanabe, the Bank of Japan's main focus in the future may be how wage increases will be reflected in service prices, which have not shown any impressive acceleration so far. Service prices in Japan rose 2.2% in February, the same as last month.
Rengo, Japan's largest trade union federation, announced after annual spring wage negotiations that its members' wages increased by an average of 5.3%, the best result since 1991. Watanabe said the Bank of Japan will need to wait at least until August to assess the impact of this on service prices.
“This makes October, when the central bank releases its latest quarterly inflation outlook, an ideal time frame for subsequent interest rate hikes.” he said.
According to a media survey, about 62% of Bank of Japan observers predict that the next rate hike will be in the fall of this year. Of these, 23% think it will be in July, and 26% think it will be in October.
Finally, Watanabe said that for Bank of Japan Governor Ueda Kazuo, the next most important task is to develop a quantitative austerity plan. The ratio of the Bank of Japan's balance sheet to the size of the economy is the highest among major central banks.
“The Bank of Japan should convey even a vague idea of quantitative austerity within the year,” he said. “It is acceptable to take decades or even hundreds of years to reduce the balance sheet.”
Editor/Somer