This morning, Haruhiko Ueda, Governor of Bank of Japan, suggested that the implementation of more hawkish monetary measures is necessary for the country’s swift exit of a negative interest rate zone. A ‘quiet exit’, Ueda noted, may come into force shortly after the end of 2023, although only when the 2% inflation target is in sight.
Japan’s quiet exit from negative interest rates shakes FX markets
As a result, Japanese 10-year bond yields saw the highest increase since 2014, while the USD/JPY currency pairing plunged to a new low. Investors will be waiting to gain more information from U.S. inflation data, which is due to be released from the Federal Reserve Bank later this week.
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Makoto Suzuki, Chief Bond Strategist at Okasan Securities, stated:
The 10-year bond yield could rise further, but selling is limited because investors do not have enough Japanese government bonds to sell due to the Bank of Japan’s large ownership in Japanese bonds.
Ueda did not completely reject the idea that market fluctuation is now a simple formality but suggested that a quiet exit is the best strategy in the present moment to tackle the increasing figures. In his first interview since April this year, Ueda noted that long-term interest rates are intrinsically tied to economic conditions and prices. He observed:
We do not necessarily intend to strictly control the yield at a specific level as for the recent depreciation of the yen. […] We will be in contact with the government to properly assess the impact on the economy and prices.
That being said, if wages do not rise at a similar rate, there can be no exit, quiet or otherwise, from the cycle of global interest hikes that have been routine during the last 3 years.
