Eiji Maeda, a former executive at the Bank of Japan (BOJ), has suggested that the BOJ may discontinue its negative interest rate policy as soon as January 2021. He believes that if the Japanese economy can withstand the risks posed by external factors, the BOJ could raise short-term borrowing costs. Maeda is in close contact with key policymakers and has noted that the BOJ’s latest price estimates project inflation to reach 1.9% in both 2024 and 2025. He adds that if inflationary pressure continues to increase, the BOJ may end negative rates in January.
Maeda further suggests that the BOJ could end its yield curve control and replace it with a guidance that pledges to buy government bonds to counter any sudden surge in long-term rates. The BOJ had initially set a target of 0% for the 10-year bond yield under its yield curve control. As part of its efforts to stimulate growth, the BOJ also applied a charge to a pool of excess reserves to guide short-term rates at -0.1%.
The former executive also believes that if the BOJ decides to end negative rates, it will need to raise short-term borrowing costs to a neutral level. He estimates that such a level will likely stand somewhere near 2%. Maeda further notes that the BOJ could then gradually raise interest rates every few months while monitoring economic and price developments. Lastly, he adds that if the BOJ ends negative rates, its policy will be similar to when it only had quantitative and qualitative easing.