Bank of Japan Governor Ueda Kazuo said that the central bank cancelled large-scale easing policies this week, in part to avoid the need to take drastic action in the future. This remark may help market participants determine how Kazuo Ueda will go next.
In response to questions in the Diet on Thursday, Kazuo Ueda said that if they wait longer to fully confirm that the stable inflation target has been achieved, this will greatly increase the risk of rising inflation.
“After large-scale monetary easing is over, the possibility of a very rapid, large-scale interest rate hike increases,” said Kazuo Ueda. “We weighed these risks before making our decision.”
While the market continues to digest the Bank of Japan's first rate hike in 17 years and the Federal Reserve suggests that it will still cut interest rates three times in 2024, Kazuo Ueda delivered the above speech.
The yen rose for the first time in eight days, and the Japanese stock market strengthened. The Bank of Japan's policy shift caused widespread repercussions, and the repurchase rate turned positive for the first time since 2016.
With interest rate hikes for the first time since 2007, the Bank of Japan ended the era of large-scale stimulus policies, and the market's focus is on how interest rates and the central bank's huge balance sheet may change next.
But economists and investors are still trying to figure out just how dovish Kazuo Ueda really is. Kazuo Ueda's speech showed that his mind had changed before this week's meeting. He had previously thought there was little risk of action delays.
The results of last week's annual wage agreement may have heightened concerns about the risk of rising inflation. The Japan Federation of Trade Unions said that during negotiations, the company agreed to raise wages by 5.3% for the next fiscal year, the biggest increase in more than 30 years, far higher than analysts' expectations.
The results of the wage negotiations prompted some economists to readjust their views on the possibility that inflation would be faster than previously anticipated.
BNP Paribas economist Ryutaro Kono mentioned the possibility of speeding up interest rate hikes, saying that interest rates may be raised again as early as July, and interest rates may exceed 1% by the end of 2025.
Currently, there are differences of opinion on the Bank of Japan's potential interest rate path, causing many market participants to continue to pay attention to the lack of hints of interest rate hikes in the central bank's guidelines and guarantees that the policy will remain relaxed. This makes the current 10-year Japanese Treasury yield, which is around 0.74%, lower than the 0.765% yield before the rate hike.