Dovish Ueda Remarks
In an interview with The Yomiuri Shimbun over the weekend, the Governor of Japan opened the door to an exit form negative rates. He said that officials could lift rates once the they are confident that the 2% inflation target has been achieved sustainably. Although he did not provide exact timing for such shift, he said the bank could have enough data that would allow that by the end of the year. 
The Bank of Japan implements an ultra-loose policy setting, with negative rates (-0.1), yield curve control (YCC) and quantitative and qualitative easing (QQE), as it struggles to create a virtuous price-wage cycle, following decades of deflation. Inflation (ex-fresh food) has been printing above the 2% target for more than a year, but policymakers are not appeared ready to change stance.
In the last policy meeting in July, the bank said that "sustainable and stable achievement" of the 2% target "has not yet come in sight", requiring the continuation of monetary easing . During that meeting, policymakers kept their +/-0.5% fluctuation range of the 10-year yields in place, but made the YCC more flexible, offering to purchase JGBs at 1%. This effective widening of the yield curve is a step towards normalization, but also allows officials to sustain their loose monetary stance.
Governor Ueda has not shown much inclination to change the status quo, but today's remarks marked a turning point, since he opened the door to hiking interest rates and to a less unconventional policy. Japan's 10-year government bond yields reacted to the news, surging to the highest level since 2014 and further above the 0.5% YCC border.
The ultra-dovish policy by the Bank of Japan is in stark contrast with its major counterparts, which has been detrimental to the Yen. The US Fed has delivered a massive amount of rate hikes, to the tune of 525 basis points since the March 2022 lift-off. This divergence benefits USD/JPY, but the pair drops today, after the comment by Mr Ueda.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 11 Sep 2023 https://japannews.yomiuri.co.jp/business/economy/20230909-135487/
Retrieved 03 Mar 2024 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2023/k230728a.pdf