BOJ Likely to Remove Phrase "Unwavering Easing" Despite No Tightening

Government Bond Yield Falls Short of 1% Ceiling
No Early Policy Revision Expected
High Inflation and Yen Depreciation Recognized as Issues
Forward Guidance Likely to Be Revised

The Bank of Japan is expected to maintain its current accommodative policy at the September monetary policy meeting held on the 22nd. However, since Japan's inflation has exceeded the BOJ's 2% target for 11 consecutive months, it is anticipated that some wording related to the easing policy will be removed from the forward guidance.

Kazuo Ueda, Governor of the Bank of Japan (BOJ)

On the 22nd, the Nihon Keizai Shimbun reported that the majority of market participants expect a low likelihood of any changes to monetary policy at this month's meeting. Since the 10-year government bond yield has not yet reached the 1% upper limit set by the BOJ for interest rate fluctuations, there appears to be no immediate need to revise the policy.

However, officials analyzed that considering the rising trends in bond yields and inflation, the BOJ is likely aware of the need to end the easing policy in the near future. In fact, on this day, the 10-year government bond yield in the Japanese bond market surged to 0.751% as of 9:48 a.m., marking the highest level in 10 years since September 2013. The August Consumer Price Index (CPI) rose 4.3% year-on-year, recording an increase comparable to June 1981 (4.5%).

The falling value of the yen is also putting pressure on the BOJ to revise its policy. On the previous day in the Tokyo foreign exchange market, the yen-dollar exchange rate surpassed 148 yen, approaching 150 yen. As of this day, the yen was trading at 147.58 yen per dollar.

Officials expect the BOJ to revise its forward guidance at the monetary policy meeting in light of these trends. Until now, the BOJ's forward guidance has included the phrase, "If necessary for financial market stability, we will not hesitate to take additional monetary easing measures," but it is highly likely that this sentence will be removed.

The timing expected for the BOJ to fully shift to a tightening stance is pointed to be March next year. According to Quick, a market research firm, 49% of market participants expect the BOJ to change its monetary policy in March next year. The proportion expecting policy revisions within this year also reached 22%.

The market anticipates that the BOJ will decide the direction of future monetary policy by at least the end of this year. Although the BOJ has stated it will judge policy revisions based on wage increase rates from the spring labor negotiations in April next year, BOJ Governor Kazuo Ueda said that information and data to support policy decisions could be secured by the end of this year.

The Nihon Keizai Shimbun explained, "At this point, few expect the BOJ to make significant policy changes at this month's meeting," but added, "Since Governor Ueda recognizes that the pace of inflation is quite rapid, how the BOJ changes its stance on inflation is expected to be the key point to watch at this meeting."

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