Ueda Speech: BoJ Governor discusses interest rate outlook at the press conference

Bank of Japan (BoJ) Governor Kazuo Ueda explains reasons behind keeping interest rates intact at the December meeting while speaking at the post-policy meeting press conference on Thursday.

The Japanese Yen has come under renewed selling pressure against the US Dollar, with USD/JPY rallying 0.60% on the day toward 156.00, as of writing.

BoJ press conference key highlights

Will keep adjusting degree of easing if our economic, price outlook is to be realised.

Need a little bit more info on wage trends.

Will guide policy from standpoint of sustainably, stably achieving price target using results of comprehensive review.

Decision to keep rates was mainly based on assessment of wage trends, uncertainties of overseas economies and next US administration’s policies.

Need to gauge situation for quite a while whether for wages or Trump administration.

Jan policy decision will be ‘hollistic’ with data available at that point.

Trump’s tariff policies, retaliatory tariffs will probably have large effect on Japan’s economy.

Pace of rate hikes has been gradual because underlying inflation, inflation expectations have been slow to rise.

Slow underlying inflation, price expectation moves mean we don’t raise rates at each meeting.

Need one ‘more notch’ until deciding additional rate hike.

This section below was published on December 19 at 02:52 GMT to cover the Bank of Japan’s monetary policy announcements and the initial market reaction.

On Thursday, the Bank of Japan (BoJ) board members decided to keep the short-term rate target unchanged in the range of 0.15%-0.25% after concluding its two-day monetary policy review meeting.

The decision came in line with the market expectations. However, hawkish board member Naoki Tamura dissented and proposed raising interest rates to 0.5% on the view inflationary risks were building.

The BoJ stood pat on polcy rate for the third meeting after unexpectedly raising it by 15 basis points (bps) from 0%-0.1% to 0.15%-0.25% in July.

Summary of the BoJ policy statement

Japan’s economy recovering moderately, albeit with some weaknesses.

Private consumption increasing moderately as a trend.

Inflation expectations heightening moderately.

Inflation likely to be at level generally consistent with BoJ’s price target in second half of our 3-year projection period through fiscal 2026.

Uncertainty regarding Japan’s economic and price outlook remains high.

Must scrutinise forex, market moves and their impact on Japan’s economy and prices.

Impact of FX volatility on inflation may be bigger than in the past due to change in corporate wage, price-setting behaviours.

Outcome of BoJ’s comprehensive review on past monetary easing steps

Appropriate for the bank to continue to conduct monetary policy from the perspective of sustainable and stable achievement of the price stability target of 2%.

The bank should not exclude at this point any specific measures when considering the futureconduct of monetary policy.

The quantitative degree of their effects are uncertain compared with conventionalmonetary policy measures.

Affected inflation expectations to some degree but not sufficiently effective to anchor inflation at 2 percent.

Long-term interest rates were pushed down by about one percentage point since 2016.

Large-scale monetary easing impact on GDP between +1.3% to 1.8%.

Impact on CPI between +0.5 and +0.7% points.

Market reaction to the BoJ policy announcements

USD/JPY caught a fresh bid wave and jumped to 155.28 before retreating quickly to 155.00, where it now wavers. The pair is down 0.17% on the day, at the press time.

This section below was published on December 18 at 23:00 GMT as a preview of the Bank of Japan Interest Rate Decision.

• The Bank of Japan will likely hold interest rates at 0.25% on Thursday.
• The language in the policy statement and Governor Kazuo Ueda’s press conference will hold the key.
• The BoJ policy announcements could ramp up volatility in the Japanese Yen.

After concluding its two-day monetary policy review on Thursday, the Bank of Japan (BoJ) is expected to hold the short-term interest rate at 0.25%.

The BoJ policy announcements will likely provide fresh cues on the central bank’s rate hike outlook, injecting intense volatility in the Japanese Yen (JPY)

What to expect from the BoJ interest rate decision?

As widely expected, the BoJ is set to pause its rate-hiking cycle for the third consecutive meeting in December. Therefore, the tone of the policy statement and Governor Kazuo Ueda’s post-policy meeting press conference, due at 06:30 GMT, will hold the key for gauging the timing of the next rate hike by the BoJ.

Markets have almost priced out a potential rate hike this week after Reuters and Bloomberg News cited people familiar with the BoJ thinking, noting that the Japanese central bank was considering keeping interest rates steady at its December meeting.

One of the sources quoted by Reuters said that “policymakers prefer to spend more time scrutinising overseas risks and clues on next year’s wage outlook.”

Wages in Japan have been rising at an annual pace of around 2.5% to 3%, causing inflation to remain above the central bank’s 2% target for well over two years.

The BoJ’s closely watched broader price trend indicator, the “core-core” Consumer Price Index (CPI) –excluding both fresh food and energy costs–, rose 2.3% in October from a year earlier, accelerating from a 2.1% gain in September. Further, revised third-quarter Gross Domestic Product (GDP) data showed Japan’s economy expanded an annualised 1.2%, at a faster pace than initially reported.

However, falling household spending and a downward revision to the private consumption data hinted at a dwindling Japanese economic recovery. Additionally, BoJ policymakers would prefer to wait for the November CPI report and the start of United States (US) President-elect Donald Trump’s administration before the next rate lift-off.

Analysts at BBH said: “The two-day Bank of Japan meeting ends Thursday with a widely expected hold. The market sees only 15% odds of a hike after several reports emerged that a pause was being considered. The risk is the BoJ paves the way for a January rate hike. The odds of a hike rise to 70% at the January 23-24 meeting, when updated macro forecasts will be released.”

How could the Bank of Japan’s interest rate decision affect USD/JPY?

BoJ Governor Kazuo Ueda said in his recent public appearance that the next interest rate hikes are “nearing in the sense that economic data are on track.” “I would like to see what kind of momentum the fiscal 2025 Shunto (spring wage negotiation) creates,” Ueda added.

In case the BoJ fails to provide a clear indication of the next interest rate hike by sticking to its rhetoric that monetary policy will be decided on a meeting-by-meeting basis depending on available data, the Japanese Yen is likely to extend its bearish momentum against the US Dollar (USD).

The JPY, however, could see a sharp corrective upside if the BoJ explicitly indicates that a rate hike is coming in January while acknowledging the encouraging economic prospects.

Any knee-jerk reaction to the BoJ policy announcements could be short-lived heading into Governor Ueda’s presser and as markets digest Wednesday’s policy decision by the US Federal Reserve (Fed).  

From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “USD/JPY faces two-way risks heading into the BoJ rate call, with a 21-day Simple Moving Average (SMA) and 50-day Bear Cross in play. Meanwhile, the 14-day Relative Strength Index (RSI) holds well above the 50 level.”

“A hawkish BoJ hold could add extra legs to the ongoing USD/JPY correction, drowning the pair toward the 152.20 area, the confluence of the 21-day SMA, 50-day SMA and the 200-day SMA. The next relevant support aligns near 151.00, at the December 10 and 11 lows. Additional declines could challenge the 150.00 psychological support. Conversely, buyers must reclaim the three-week high of 154.48 to negate the near-term bearish bias. The July 24 high of 155.99 will be next on their radars en route to the 156.50 barrier,” Dhwani adds.

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