Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday that his basic position is to raise interest rates further if the likelihood of our economic and price forecasts becoming reality increases.
Key quotes
Our fundamental position is to continue to raise interest rates if our economic and price forecasts become more likely to come true.
Core inflation has not yet fully reached 2%, will guide policy in such a way that core inflation reaches 2% or prevents it from exceeding 2% on a sustained basis.
We do not believe that we are lagging behind in countering the risk of too high inflation.
Since January, there has been no change in our expected time to target price, and inflation is expected to pick up again amid the current slowdown.
If the outcome of spring wage talks is stronger than expected and prompts companies to shift costs quickly, there is a chance we could reach the target price sooner than expected.
April Tankan is vital information, but we do different surveys, so it’s not like we have to wait until Tankan is released to have enough data.
The Bank of Japan will hold policy meetings in March and April, analyze information available until then and make a decision when asked about growing market views. The Bank of Japan may raise interest rates in April.
Trump’s up-to-date tariffs are not expected to have a significant impact on the Japanese economy, but developments should be closely monitored.
It is vital for the government and parliament to ensure market confidence in the medium and long-term health of Japan’s finances.
Market reaction
As of this writing, USD/JPY is up 0.20% at 156.20 on the day.
Japanese Yen FAQs
The Japanese yen (JPY) is one of the most frequently traded currencies in the world. Its value is largely determined by, among other things, the performance of the Japanese economy, but in particular the policy of the Bank of Japan, the difference between the yields of Japanese and American bonds, and the risk sentiment of investors.
One of the tasks of the Bank of Japan is currency control, so its movements are crucial for the yen. The BOJ has at times intervened directly in currency markets, generally to depress the value of the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BOJ’s ultra-loose monetary policy in 2013–2024 resulted in the depreciation of the yen against other major currencies due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual withdrawal from this ultra-loose policy has provided some support to the yen.
Over the past decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to widening policy divergences with other central banks, particularly the US Federal Reserve. This supported a widening spread between US and Japanese 10-year bonds, which supported the US dollar against the Japanese yen. The BoJ’s decision to phase out ultra-loose policy in 2024, combined with interest rate cuts at other major central banks, narrows the gap.
The Japanese yen is often viewed as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. The turbulent times are likely to strengthen the value of the yen relative to other currencies considered riskier to invest in.
