Governor Ueda Signals Policy End
Yen Value Rises to 141 Yen Temporarily
Government Bond Yield Jumps 0.1%P
Key figures at the Bank of Japan (BOJ) have consecutively hinted that Japan's accommodative monetary policy may change, raising expectations that the BOJ could abandon its negative interest rate policy as early as this month's monetary policy meeting. This has caused fluctuations in the Japanese financial market, with the yen rising to the high 141 yen range against the dollar at one point the previous day.
On the 7th (local time), Bloomberg reported that the current overnight index swap (OIS) market estimates a 49% probability that Japan will abolish its negative interest rate policy this month. OIS refers to the one-day ultra-short-term lending rate between financial institutions, and the OIS market outlook is considered an indicator for predicting changes in the benchmark interest rate.
The previous day, comments by BOJ Governor Kazuo Ueda raised expectations of a shift in the BOJ's interest rate stance. Governor Ueda stated during a meeting with Prime Minister Fumio Kishida that "monetary policy operations will become more challenging from the end of this year through next year," and that he would closely monitor whether wage increases will drive inflation. He also expressed the same view at the House of Councillors’ Committee on Financial Affairs, saying, "From the end of this year through next year, policy will shift to a more challenging situation."
Furthermore, he explained that if the negative interest rate policy ends, "whether to maintain rates at 0% or raise them to 0.1%, and the speed at which short-term rates rise, will depend on financial market conditions," indicating that no specific expected interest rate level has been set. This suggests the possibility of ending the negative interest rate policy that has been in place for years while observing wage and price trends. The market interpreted this as a statement signaling the end of monetary easing. Bloomberg reported, "Governor Ueda’s remarks contributed to fueling market speculation that the negative interest rate will be abolished."
These remarks align with the hawkish comments made on the 6th by BOJ Deputy Governor Ry?z? Himino. At a meeting with business leaders in Oita Prefecture, Japan, Deputy Governor Himino emphasized, "A virtuous cycle where wage increases lead to inflation is spreading to households and companies," and added, "If the exit strategy is properly implemented, positive results can be expected." Major foreign media explained that this indicates Deputy Governor Himino’s growing confidence that the environment for changing monetary policy within the BOJ is being established.
The hawkish comments from key BOJ officials have stirred the Japanese financial market. In the New York foreign exchange market the previous day, the yen rose to the high 141 yen range against the dollar in the afternoon. As of 10 a.m. in the Tokyo foreign exchange market on the same day, the yen-dollar exchange rate stood at 142.77. Since last month, the yen, which had fallen to the 150 yen range against the dollar, has shifted to a strong trend from mid-month, showing a sharp rise.
Government bond yields also rose accordingly. The 10-year Japanese government bond yield closed at 0.751% the previous day, up 0.101 percentage points from the previous close of 0.650%. The Nihon Keizai Shimbun reported, "With Governor Ueda and Deputy Governor Himino’s remarks strengthening expectations of a monetary policy revision, yen purchases appear to have increased again."
Some experts analyzed that major foreign media reporting consecutively on the abolition of the negative interest rate following Governor Ueda’s remarks also shocked the market. Mizuho Senior Economist Yasuya Ueno explained, "Following Bloomberg’s report on the ‘negative interest rate abolition outlook’ on the 7th, Japan’s financial magazine Financial Faxily also published an article titled ‘The First Step Toward Interest Rate Normalization.’ While it is difficult to determine how much these reports influenced the market, it is clear that the market is closely watching the BOJ’s movements."
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