BOJ’s Ueda keeps wage hike hopes, quake dampens bet of Jan policy shift

TOKYO  —Japan’s central bank governor on Thursday voiced hopes for sustained inflation and wage growth this year, even as concerns over a recent earthquake hit stocks and led some analysts to trim bets of a near-term exit from ultra-low interest rates.

“Last year, there has been some shift away” from Japan’s prolonged low-growth, low-inflation period, Bank of Japan Governor Kazuo Ueda said in a New Year event of brokerage firms, adding he hoped further progress will be made in achieving balanced rises in wages and inflation.

While making no direct mention of monetary policy, Ueda said the BOJ would take necessary steps to ensure banking and funding conditions remain sound in areas hit by the quake.

READ: Japan’s economy contracted in Q3 as demand waned

The remarks came against the backdrop of a darkening outlook for the economy. Japan’s Nikkei average slumped in the first trading day of 2024 as the devastating earthquake that hit western Japan earlier this week hurt investor sentiment.

While many market players still expect the BOJ to end its negative interest rate policy sometime in 2024, the quake added to growing views it will forgo such action at its next policy meeting on Jan. 22-23.

In an interview with public broadcaster NHK last week, Ueda said he was in no rush to unwind ultra-loose monetary settings due to a lack of conviction inflation would sustainably hit the BOJ’s 2 percent target.

“With the earthquake, the chance of action at the January meeting has declined further,” said Mari Iwashita, chief market economist at Daiwa Securities, who revised the expected timing of an end to negative rates from January to any time by April.

Morgan Stanley MUFG Securities also pushed back the timing of a policy shift to March or April, from its initial forecast of January, citing the impact of the quake and Ueda’s dovish interview remarks.

READ: BOJ to phase out loose monetary policy in January -Reuters poll

“Ueda effectively signaled that the chance of a January action is low,” Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG, said on Ueda’s NHK interview remarks.

“Furthermore, the BOJ must now scrutinize the impact of the earthquake on the economy,” which further diminishes the chance of a January move, Yamaguchi added.

Thousands of rescuers pressed on in their search for survivors of a New Year’s Day quake that killed at least 78 people in Japan and damaged infrastructure.

So far, many analysts expect any impact from the quake on economic growth to be small. Takahide Kiuchi, an economist at Nomura Research Institute, estimates the damage to total 812.1 billion yen ($5.66 billion), or about 0.15 percent of the size of Japan’s annual nominal gross domestic product (GDP).

($1 = 143.4800 yen)