Investors waiting for speech new head of BoJ
2023.02.21 13:31
Investors waiting for speech new head of BoJ
By Tiffany Smith
Budrigannews.com – On Friday and Monday of next week, Kazuo Ueda, the new governor of the Bank of Japan (BOJ), will address parliament. This comes as markets betting on a quick increase in interest rates continue to target the yield cap set by the BOJ.
The markets will pay close attention to the remarks made by Ueda, a former BOJ board member and academic. They will be looking for clues about when the central bank might end its bond yield control policy.
The yield on the 10-year bond yield briefly touched 0.505% on Tuesday, exceeding the BOJ’s 0.5% cap to reach the highest level since January 18. This occurred as long-term interest rates rose in anticipation of a policy change.
According to some analysts, Ueda’s task of steering a smooth exit from ultra-low rates may be complicated by the market’s renewed attack on the BOJ’s yield cap. When Haruhiko Kuroda’s term as governor expires in April, Ueda will take over.
A lawmaker from the ruling party stated on Tuesday that the government’s nomination for central bank governor, Ueda, will be confirmed by the upper house of parliament on February 27.
The hearing will last nearly four hours and begin at 1:10 p.m. (0410 GMT).
He stated that the deputy governor nominees, BOJ executive Shinichi Uchida and former banking watchdog head Ryozo Himino, would testify the following day.
Financial markets will get a first look at Ueda’s monetary policy stance at the upper house testimony, which will come after one that the lower house will hold on Friday.
The nominations need to be approved by both Diet chambers, which the ruling coalition already has because it has a strong majority in both.
The BOJ uses yield curve control (YCC) to keep short-term interest rates at -0.1% and the yield on 10-year bonds at around 0% in order to consistently achieve its inflation target of 2%.
The BOJ was forced to raise the implicit cap for its 10-year yield target from 0.25 percent to 0.5% in December due to pressure from rising global interest rates. This move fueled market expectations of a change to YCC in the near future.
BNP Paribas (OTC:) chief Japan economist Ryutaro Kono anticipates that the BOJ should raise the yield cap to 0.75% or 1% as soon as in Spring – the last approach meeting to be led by Kuroda.
He stated, “If the BOJ does not do anything in March, the new leadership under Ueda will have to deal with a huge bond sell-off by global investors.” This is something that the BOJ probably wants to avoid.
But other analysts aren’t sure if the BOJ will act quickly because Japan’s economy is fragile.
“Some players in the market anticipate that Kuroda will act before the end of his term in April.” However, the chief market economist at Mizuho Securities, Yasunari Ueno, stated, “I don’t expect an outgoing governor to spur a surprise that could hit companies just as they close their books at the fiscal year-end in March.”
He stated that the recent cost-push inflation cannot be sustained and that “Ueda also won’t rush in exiting ultra-loose policy.”
According to Reuters polls of analysts, the core consumer inflation rate in Japan reached a 41-year high of 4.2% in January.
However, as the impact of rising raw material costs diminishes, the BOJ anticipates that inflation will slow to below 2% later this year. Kuroda has stated that the central bank must continue its ultra-easy policy until wage growth and inflation coincide.
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