Bank of Japan more hawkish than expected

Stephen Innes SPI Asset Management

The yen witnessed more significant movement than anticipated after today's Bank of Japan (BoJ) policy meeting, causing the USD/JPY to retreat towards the 147.00 level after reaching an intra-day high of 148.55 overnight. The primary catalyst for the yen's gains stemmed from comments made by Governor Ueda during the accompanying press conference, indicating that the BoJ is approaching a potential rate increase. However, Governor Ueda refrained from providing a more definitive timeline for exiting negative rates.

During the press conference, Governor Ueda expressed increased confidence in the likelihood of achieving the 2.0% inflation target. He noted that the probability of reaching this target was "rising gradually." Encouragingly, he mentioned positive feedback from major companies in Japan regarding wage hikes for the upcoming fiscal year. Governor Ueda highlighted that the number of companies opting for wage increases in this year's spring negotiations surpassed last year's figures. While uncertainties persist about the widespread nature of these wage hikes, they are not expected to reach the same levels as the previous year. The belief is that once the BoJ gains confidence in the sustainability of stronger wage growth in the upcoming fiscal year, it will mark the final step before initiating rate hikes.

Despite the BoJ's expressed confidence in achieving the price target, Governor Ueda refrained from providing a more concrete indication of the timing for the first rate hike. He emphasized the challenge of quantifying how much closer they are to exiting negative rates. Still, he hinted at the likelihood of multiple rate hikes when departing from the negative rate policy, suggesting it won't be a one-time occurrence. Governor Ueda concluded by underscoring that the BoJ would conclude its negative rate policy when it believed that reaching the 2.0% inflation target was imminent.

All in all, it was a bit more hawkish than was priced but perhaps fell short of a central bank surprise.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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