(Bloomberg) – A dovish stance by new Bank of Japan Governor Kazuo Ueda at his inaugural press conference is likely to be short-lived, strategists say.
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An uninterrupted stream of commentary on measures ranging from yield curve control to negative interest rates caused the yen to fall as Ueda hinted that a significant change in policy may be unlikely for now. But market participants still see a change of course as inevitable amid rising inflation and will be watching the language closely at this month’s policy meeting before making any position changes.
The BOJ’s Ueda says it is appropriate to leave the guidelines unchanged for the time being
Here is a selection of comments from Japan watchers:
Attention at the next meeting
Teppei Ino, Head of Global Market Research at MUFG Bank Ltd.
“Ueda’s first press conference prompted a weaker yen, likely because some market participants who expected him to provide more details on optimizing yield curve control were disappointed. Basically, Ueda pointed to the maintenance of the current monetary policy framework, including negative interest. However, this will hardly be a factor to gradually sell the yen and investors will likely await the discussions at the April 27-28 policy meeting.”
Policy tightening likely to remain
Joseph Capurso and Kristina Clifton, strategists at the Commonwealth Bank of Australia.
“Policy tightening is still more likely than not given inflation and wage trends. Dollar-Yen continues to be led by US Treasury yields. Risks are skewed to the downside on the risk of Bank of Japan tightening. Nonetheless, USD/JPY can rally to 134.68 if financial markets revise upwards their expectations for the FOMC Fed Funds Rate this week.”
The story goes on
Forward Guidance Governor
Shoki Omori, Chief Desk Strategist at Mizuho Securities Co.
“I don’t think the new BOJ is contemplating a major policy shift at the April-June monetary policy meeting given its dovishness on data and foreign banking sectors. There are two quick takeaways. First, he found it difficult to dismiss the comment he had made in Parliament. I think he probably identifies as the governor of “timeline policy (forward guidance)”. I think he is against negative interest rate policy as he said it is harmful in terms of financial intermediation, but he might not be able to deny it outright.
Second, Ueda’s press started quite late at 7:15 p.m. when the Japanese markets were closed. If he drastically changed the tone of his language, it would give foreign investors an advantage over domestic investors in important products. I have a feeling Governor Ueda wants to be data driven and maintain the status quo. For trades, I would like to keep 20s-30s flattener, 5y JGBASW and short USD/JPY with short RR.”
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