(Bloomberg) -- The Bank of Japan will likely end its negative interest rate early next year then may leave it at zero without further hikes, according to an economist once seen as a potential candidate for the central bank’s new leadership line-up this year.

Persistent inflation in 2024 will be accompanied by wage growth that’s as high or higher than this year, said Tsutomu Watanabe, an economics professor at the University of Tokyo known for his expertise in prices. With consumers’ expectations and tolerance for price rises improving, firms will continue to pass increased labor costs from wage hikes onto prices, he added.

“If you look at the BOJ’s outlook report, it appears the bank thinks that inflation and wage gains will be temporary,” he said at a press conference Tuesday. “But I think the trend is sustainable.”

Watanabe’s comments come after BOJ Governor Kazuo Ueda said Monday that it’s unlikely policymakers will have the data needed to declare by year-end that it’s time to put an end to sub-zero interest rates. Before last month’s policy decision, 47% of economists surveyed by Bloomberg expected an end to the world’s last major negative rates holdout by April.

Nominal pay growth in Japan strengthened in September, but so far wage gains have fallen behind inflation for 18 consecutive months. With pay not keeping up with prices, the BOJ continues to emphasize the need to wait for more evidence of a virtuous wage-price cycle emerging before making any major adjustments to its monetary policy. 

While some observers see the BOJ as behind the curve, Watanabe said Japan is still struggling with chronic deflation, since many goods still haven’t budged in price despite pockets of new inflation. This creates a difficult policy landscape, as boosting the country’s long-held negative interest rate would be positive for sectors that are seeing sudden inflation, but negative for goods whose prices haven’t moved, he said. 

“Some people in Japan say that the country has already exited from deflation and have already entered into inflation, but I actually don’t agree with that,” said Watanabe. “The BOJ will probably increase the rate up to 0%, but then they will wait and see what would happen to commodity prices and wages after that.”

Repeated rate hikes after the 0% mark is reached are unlikely during 2024, Watanabe said. As the country transitions from a long period of deflation to having sustained inflation, it will have to carefully watch its new equilibrium of higher prices and wages to confirm that these will not be adversely impacted before raising rates further, he said. 

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