Goldman Sachs now expects the Bank of Japan to hike rates Tuesday

Goldman Sachs now expects the Bank of Japan to raise interest rates for the first time in 17 years at its March meeting this week, bringing forward its previous forecast for an April decision.

The bank's senior Japan economist Tomohiro Ota cited stronger-than-expected salary gains at the annual "shunto" wages negotiations and subsequent Japanese news reports of an exit from negative rates at the BOJ's March meeting that ends Tuesday.

"The BOJ has not sent any signal denying the news so far," Ota wrote in a Monday note. "Together, these developments imply that the BOJ probably no longer needs more data for the policy change, nor to wait to justify the policy change with the quarterly Economic Outlook report in April."

While a slim majority of economists are still expecting the central bank to raise rate in April, an increasing number of economists have moved their forecasts forward to March in the last two weeks amid signs that salary negotiations this year will be far more robust than expected.

Ota said he expects the BOJ to abolish its yield curve control policy, which the central bank employs to target longer-term interest rates, by buying and selling bonds as necessary. Still, he expects the central bank will "not explicitly commit" to the size of its Japanese government bond purchases or the cessation of its ETF purchases.

"The overshooting commitment, by which the BOJ commits to increase monetary base, is likely to be abolished as well," he added.

While the central bank has effectively loosened its yield curve control policy over longer term interest rates over the past 16 months, it has kept interest rates at -0.1% and still maintains an upper limit for 10-year Japanese government bond yield at 1% as a reference.

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