BoJ’s Ueda: From a long-term perspective, rising rates will help improve financial institutions' profits

Dhwani Mehta FXStreet

Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday that “from a long-term perspective, rising interest rates will help improve financial institutions' profits.”

Additional quotes

BoJ’s massive monetary easing, including yield curve control (YCC), was a necessary process towards achieving our price target.

We acknowledge the BoJ’s massive stimulus has caused various side effects.

The rise in long-term interest rates will push up corporate funding costs but they also need to take into account how improving the economy will underpin their profits.

Survey, data on bank lending, firms' funding conditions show they are in good shape.

Accommodative monetary environment continues to support Japan's economy.

If markets make abnormal moves, we stand ready to respond nimbly such as through market operations to smooth market moves.

Won't comment on where long-term interest rates could eventually converge.

Can't say specifically when exactly the BoJ could conduct emergency market operations to soothe yield moves.

We will decide by looking at whether long-term rates are moving stably, when asked when the BoJ could conduct emergency market operations.

Rise in long-term interest rates reflects modest economic recovery, rising price trend.

Generally speaking, loss of market confidence in Japan's fiscal health could drive interest rates.

A hike to 50 bps interest rates will boost interest payments for reserves by JPY 1tln.

There could be more side effects from monetary easing.

More interest rate hikes could come into sight if the price outlook continues to improve, and there might be some unpredictable impact on the economy.

We will purchase government bonds nimbly to foster the stable formation of yields in exceptional cases where long-term yields rise sharply.

Accommodative environment continues.

Will adjust monetary policy if underlying prices raise.

Underlying inflation is still slightly below 2%.

Market reaction

USD/JPY keeps its recovery mode intact following these comments, adding 0.37% on the day to trade near 150.20, as of writing.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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