**As seen in Risk In The Week report 03/17/24, subscribe at cablefxm.co.uk/reports
The Bank of Japan left its benchmark policy rates unchanged in late January, some economists had brought the chatter for a potential adjustment as we headed into the event. The central bank left forward guidance unchanged while the FY forecasts for core inflation stayed at prior levels, the BoJ sees FY 2024 core CPI ex-energy at 1.9% while the central bank sees Y/y headline CPI holding above 2% through this period. Heading into Q2, much of the potential policy adjustment has been focused on wage negotiations, an uptick in pay could spark the BoJ to finally leave NIRP. Rengo, the largest group of Japanese labor unions secured a pay rise of more than 5% for the coming FY, Japanese media reported. We will be watching how the central bank interprets the development and if a policy adjustment is likely to be followed by further increases.
Analysts at ABN Amro penciled the BoJ lifting rates in 2Q to 0.0%, this is in line with the consensus median, however, they didn't rule out a rate hike in March (swaps price in 54.0% chance of a rate hike this week). ABN Amro sees further tightening this year as the desk forecasts another 25bps rate hike in 2H 2024. Goldman Sachs is now expecting the BoJ to scrap negative rates in March, they said that news articles and wage increase developments suggest a shift in policy. MUFG economists are out of consensus as they expect a move this week on the back of wage negotiation results, however, they warned that the central bank is likely to keep a cautious tone despite a rate hike.
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