[Bank of Japan Decision Meeting Preview] Will monetary easing come to an end due to the depreciation of the yen for the first time in 34 years? Pay attention to whether policy interest rates induce interest rate increases even if left unchanged

The Bank of Japan will hold a monetary policy meeting on the 25th to 26th. The details of the decision will be announced around noon on the 26th, and a press conference by President Kazuo Ueda will be held from 15:30.
We just decided to cancel negative interest rates that continued for 8 years at the previous March meeting, and this timeMaintaining the status quo is certain when it comes to policy interest ratesIt's been done. Meanwhile, from the market,There is a possibility that there will be some kind of action leading to an increase in interest rates, such as announcements aimed at early additional interest rate increases or reductions in purchases of long-term government bondsThere is a voice pointing it out.
The background is an “unexpected historical depreciation of the yen,” which fell by 5 yen or more compared to the dollar despite interest rate hikes in March, and reached a level for the first time in 34 years.

At the March meeting, a policy of “continuing an accommodative financial environment” will be indicated even if zero interest rates are lifted
At the previous March meeting, positive responses to wage increases in the spring battle centered on major companies were a strong boost, and negative interest rates that continued from 2016/2 were lifted,Implement interest rate hikes for the first time in 17 yearsI did it. At the same time, it was decided to abolish long and short interest rate operations (yield curve control, YCC) and end purchases of risk assets such as ETFs (listed city trusts) and REITs (real estate investment trusts).
On the other hand, it was also suggested that there is no hurry to raise additional interest rates, saying “assuming the current economic and price outlook, we believe that an accommodative financial environment will continue for the time being.”

At the April meeting, it is certain that the status quo will be maintained, and the view that additional interest rate hikes will be this fall is dominant...
There is also the fact that it is right after interest rates were raised for the first time in 17 years in March, and it seems certain that policy interest rates will not be changed at the April meeting.
In the April monthly survey (foreign exchange) (Nihon Keizai Shimbun dated 20th) by Quick announced on the 15th and the economist survey by Blubberg on the 12th to 17th (Bloomberg on the 23rd), there were almost no predictions of changes in policy interest rates at the April meeting.
As for the period of additional interest rate hikes, October (22%) is the most common in the monthly survey (foreign exchange) by Quick, and when September (18%) and July (17%) are combined, it exceeds 50%. Even in the economist survey by Bloomberg, October was the most common at 41%, accounting for nearly 80% in July (19%) and September (17%).

Will the unexpected depreciation of the yen force additional interest rate hikes at an early stage?
The Bank of Japan's policy change at the March meeting happened “as expected” for the market,What was “unexpected” was that the depreciation of the yen progressed after interest rate hikesIt was. Due to the Bank of Japan's interest rate hike, it was also anticipated that the yen would appreciate due to awareness of a reduction in interest rate differences between Japan and the US, but since early interest rate reduction observations receded due to recurrent concerns about inflation in the United States, the depreciation of the yen progressed in reverse. The dollar yen rate re-entered the 1 dollar = 150 yen range on March 19, when interest rate hikes were announced. Currently, the price dropped rapidly until it temporarily reached the 155 yen level, and since 1990/6, it has remained at a depreciation level for the first time in 34 years.

Due to the rapid depreciation of the yen, speculation about an early additional interest rate increase by the Bank of Japan has begun to spread within the market. According to the economist survey conducted by Blubberg from the 12th to the 17th,Regarding the risk that the Bank of Japan will be forced to raise interest rates due to the depreciation of the yen, 70% answered “there is”I did (Bloomberg 18th). “The September interest rate hike is the main scenario,The risk of moving ahead of schedule from June to July is increasingViews such as” (BNP Paribas Securities Chief Economist Ryutaro Kono, Bloomberg, 23rd) have also surfaced.

Yield on medium-term government bonds rose due to speculation of additional interest rate hikes
The spread of speculation about additional interest rate hikes is encouraging an increase in short-term interest rates. On the 22ndThe yield on 2-year government bonds is 0.29%, the highest since 09/6It became. In the current next-day interest rate swap (OIS) market,The Bank of Japan is expected to raise additional interest rates in July with a probability of about 70%It is said that they are doing it (Nihon Keizai Shimbun, 18th).Since the increase in additional interest rate hikes observations seems to be upward pressure on the short-term prime rate, which is also the standard for variable interest rates on mortgages, it is also expected that it will affect the national economy in various ways。

Will the Bank of Japan induce an increase in interest rates without raising interest rates?
Policy interest rates were left unchanged at the April meeting, and as a clear countermeasure against the depreciation of the yenAlthough no additional interest rate hikes will be made, the view is that they will affect exchange rates by tolerating or inducing interest rate increases to some extentIt's also out.
The following three specific methods are expected to raise interest rates.
1.Remarks by Governor Ueda and others suggesting early interest rate hikes
2.Changes in price forecasts
3.Reduction in the purchase amount of long-term government bonds

1. Are there suggestions for early interest rate hikes
At the press conference after the closing of G20 on the 18th, President UedaThe rapid depreciation of the yen “may have an impact on the underlying inflation rate. If an impact of a magnitude that cannot be ignored occurs, changes in monetary policy are also possible” he said. Furthermore, on the 19th, at a lecture in Washington, USA,”If the underlying rise in prices continues, there is a very high possibility that interest rates will be raised” he said (Nihon Keizai Shimbun, 20th). If further in-depth content is transmitted at the presidential conference on the 26th or “main opinions” announced after the meeting, etc.There is a possibility that interest rates will rise as the market is aware of early interest rate hikes。

2. Will the price outlook be revised upward in the outlook report
The April meeting continues with the January meeting“Economic and Price Outlook (Outlook Report)” publishedIt will be done. According to the Nihon Keizai Shimbun dated 20,Discuss whether to revise the outlook for the consumer price index (CPI, excluding fresh food) for fiscal year 24, which was expected to rise 2.4% at the time of the January meetingIt's called. Also, it is shown for the first time this time as information from multiple stakeholdersThe year-on-year rate of increase in the consumer price index (CPI) for fiscal year 26 is expected to be around 2%, and it seems that stable price increases are expected to continue。If the forecast that the 2% price stability target will continue over the long term is strengthened, interest rate hikes will be brought forward, and it is also expected that this will lead to an increase in interest rates。
However, Governor Ueda expressed recognition at the House of Councillors Finance Committee on the 23rd that the current underlying inflation rate “falls below 2%, so it is appropriate to maintain an accommodative financial environment” (Bloomberg, 23rd).
Incidentally, Governor UedaAs for the impact of the depreciation of the yen, “how they are being evaluated is taken up in outlook reports and shown numerically as well.”(press conference after the closing of G20 on the 18th, Jiji Press on the 19th), and it is expected that the Bank of Japan's stance on exchange rate fluctuations will be clarified.

3. Will the government bond purchase policy be revised
What is expected to have a direct impact on the marketReduction in the purchase amount of long-term government bondsThis is a message from the Bank of Japan regardingAt the March meeting, “we will continue to buy long-term government bonds at about the same amount as before (clearly stated as about 6 trillion yen per month)”Thus, when long-term interest rates rise rapidly, they showed a continuing attitude of accommodative financial environment, assuming that they respond flexibly, such as an increase in purchase amounts.
Governor Ueda gave a lecture in Washington, USA held on 4/19,Regarding the purchase reduction of long-term government bonds, “I want to take time to examine and decide at what timing and at what speed”It says (Nihon Keizai Shimbun dated 20th). Also, at the House of Councillors Finance Committee on the 22nd”I would like to reduce the purchase amount a little more in the futureThe idea was shown (Nihon Keizai Shimbun dated 22nd).
Okumura Tsutomu, senior interest rate strategist at SMBC Nikko SecuritiesAt the April meeting, “there is a possibility that the phrase 'roughly the same as before will be revised in order not to accelerate the depreciation of the yen any further. '”I pointed it out,”Market impact of revisions to government bond purchase policies is likely to increase, so care must be takenIt probably is,” he said (Bloomberg, 22nd). Furthermore, Chief Bond Strategist Harumi Muguruma of Mitsubishi UFJ Morgan Stanley Securities said, “If this were to be removed,The market braces itself with signals to start quantitative tightening (QT) in the near futureThey are sounding the alarm, saying, “Probably” (Bloomberg, 22nd).　

ー MooMoo News Mark
Source: Bank of Japan website, Bloomberg, Nihon Keizai Shimbun, Jiji Press, moomoo