BOJ governor Ueda’s absence fuels market nerves over rate meeting

[TOKYO] Bank of Japan (BOJ) governor Kazuo Ueda’s hospitalisation is generating uncertainty among investors over the central bank’s messaging at its policy meeting next week, even as they remain convinced officials will raise interest rates.

Ueda is expected to miss the BOJ’s meeting from Jun 15 to 16 and will refrain from casting a vote, but will express his views via a statement.

Deputy governor Ryozo Himino will serve as acting chair while another deputy, Shinichi Uchida, will host a post-meeting press conference.

Ueda’s absence is unlikely to shift expectations of a hike, but uncertainty is growing among market participants about how clearly Uchida will communicate at the press conference.

The BOJ’s cautious approach to rate hikes has been weighing on the yen due to the large interest rate differential between the US and Japan.

“Especially in the bond market, investors have become accustomed to Ueda’s communication style – not just what he says, but his facial expressions and the mood he creates at the press conference,” said Hiroshi Namioka, chief strategist at T&D Asset Management.

“Without Ueda, it may be harder to gauge what the BOJ is thinking and for bond and FX traders to interpret the bank’s outlook, which could fuel uncertainty.”

Still, it is also possible that Uchida may deliver a clearer message about rates going forward in contrast to Ueda’s tendency to try to be even-handed. Any guidance on how quickly the BOJ might move again, assuming a hike at the meeting, will be a key factor for the currency market after the decision on Jun 16.

Investors are betting that the BOJ needs to raise rates soon to combat inflation and curb the yen’s weakness. Officials are set to consider a quarter-percentage-point increase to the benchmark interest rate next week and see the possibility of a further rate hike later this year, according to people familiar with the matter.

SEE ALSO

Bank of Japan to consider pausing bond taper next fiscal year: sources

BOJ expected to raise interest rates in June: sources

BOJ’s Ueda signals good chance of June hike as price risks rise

Bank of Japan governor Ueda hospitalised, will miss June meeting

More

Overnight index swaps showed the chance of a hike briefly fell to as low as about 73 per cent on Thursday (Jun 11) morning before almost fully pricing it in again, according to Bloomberg data.

The yen was little changed at 160.5 per US dollar as at 11.04 am in Tokyo, while Japan’s 10-year bond futures for September added four ticks to 127.51.

“A 25-basis-point hike still looks all but certain. The bigger question for markets is how Uchida handles the press conference,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“If the BOJ delivers the expected hike, it should help reassure investors about the BOJ’s independence and give policymakers some breathing room as they assess when to next raise rates.” BLOOMBERG