Ueda Takes Cautious Stance Ahead of April Rate Decision, Weakening Hopes for Hike

Kazuo Ueda, Governor of the Bank of Japan (BOJ), on the 16th (local time), emphasized two-way risks and refrained from providing a clear direction on interest rates. Governor Ueda's ambiguous stance served to lower expectations for a rate hike at the policy meeting scheduled for the 27th-28th of this month.

Kazuo Ueda, Governor of the Bank of Japan (BOJ), is speaking at a press conference held in Tokyo on March 19. Photo by AFP Yonhap News

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According to Bloomberg News, Governor Ueda, who is visiting the United States to attend the G20 Finance Ministers and Central Bank Governors' Meeting, told reporters, "The current situation includes a major shock in the form of rising energy prices," adding, "There are upward risks to prices, while at the same time, there are downward risks to the economy."

He said, "This is why policy responses are very difficult," and added, "It is not easy to provide a generic answer." He continued, "Based on the persistence of the shock and the broader economic environment, we will choose the most appropriate response to sustainably achieve the 2% inflation target."

Bloomberg News commented that Governor Ueda maintained a cautious stance by not specifying the policy direction at what was effectively his last opportunity to send a signal to the market regarding interest rates. Before the previous two rate hike decisions, Governor Ueda had given explicit signals to allow the market to prepare.

At this month's BOJ meeting, a new economic outlook is scheduled to be released alongside the decision on the policy rate. It is widely expected that the inflation forecast will be revised upward, while the growth rate forecast will be revised downward. Currently, Japan's policy interest rate stands at around 0.75%.

Atsushi Takeda, Chief Economist at Itochu Research Institute, said, "The lack of a clear signal means the likelihood of a rate hike this month is low," adding, "Market expectations have dropped significantly, but the governor did not try to adjust them."

Earlier, economists at investment bank Barclays also delayed their forecast for the timing of a rate hike from April to June this week, citing the difficulty of assessing risk. The interest rate swap market currently reflects about a 19% probability of the policy rate being raised to 1% this month, a significant drop from the 55% probability suggested at the start of the week.

Meanwhile, immediately after Governor Ueda's press conference, the dollar-yen exchange rate soared to 159.43 yen, reflecting a trend of yen depreciation. The previous day, the dollar-yen exchange rate had remained in the mid-158 yen range. The rise in the exchange rate indicates a weakening of the yen.

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