Market participants still see a policy shift as inevitable in the face of rising inflation and will be closely watching the next policy meeting 

by YUMI TESO & DAISUKE SAKAI 

A DOVISH stance from new Bank of Japan (BoJ) governor Kazuo Ueda at his inaugural press conference is likely to be short-lived, according to strategists. 

A steady-as-she-goes series of comments on measures from yield-curve control (YCC) to negative interest rates sent the yen sliding as Ueda hinted any significant policy tweak may be unlikely for the time being. But market participants still see a policy shift as inevitable in the face of rising inflation and will closely watch the language at this month’s policy meeting before making any changes to positions. 

Here’s a selection of comments from Japan watchers: 

Attention on Next Meeting 

Teppei Ino, head of global markets research at MUFG Bank Ltd. 

“Ueda’s first press conference spurred a weaker yen probably because some market players who expected him to provide more details about YCC tweak were disappointed. Basically, Ueda indicated maintenance of the current monetary policy framework, including the negative interest rate. However, this will unlikely be a factor to successively sell the yen and investors will probably await discussions at the April 27-28 policy meeting.” 

Chance of April Tweak Remains

Hideyuki Ishiguro, senior strategist at Nomura Asset Management Co. 

“Despite Ueda’s remarks, there remains possibility to tweak the YCC at the BoJ’s April meeting. Any hint of the adjustment in advance would just encourage speculative bets against the policy. So, he might have been cautious not to provide any hint, which in turn shows possibility to see a tweak in April. The yen weakened as Ueda said it’s appropriate to maintain the YCC and negative interest rate policy, making export-related stocks such as electric and precision appliances stocks attractive to buy.” 

Gradual Path 

Tsutomu Soma, a bond and currency trader at Monex Inc. 

“Looking at Ueda’s press conference, the BoJ will probably continue the current policy and only gradually adjust the policy by closely watching data over a period. They may take at least six months to watch the data before a tweak. If they abolish the YCC now, the yen will sharply strengthen, which may not be desirable. The Federal Reserve (Fed) may raise its key rate in May but that may be the last, which still keeps the two nations’ yield gap to a certain extent and keeping the dollar-yen pair in a certain range. However, the basic trend may be for a stronger yen because Japan’s direction is toward tightening through adjustment or removal of YCC.” 

Policy Tightening Still Likely 

Joseph Capurso and Kristina Clifton, strategists at Commonwealth Bank of Australia. 

“Policy tightening is still more likely than not given the trends in inflation and wages. Dollar-yen will remain guided by US Treasury yields. Risks are skewed down amid risk of BoJ tightening. Never- theless, US dollar-Japanese yen can lift to 134.68 if financial markets revise up their expectations for the Federal Open Market Committee (FOMC) Fed funds rate.” 

Forward Guidance Governor 

Shoki Omori, chief desk strategist at Mizuho Securities Co. 

“I don’t think the new BoJ is thinking about major policy change in April and June monetary policy meeting given their cautiousness in data and overseas banking sectors. There are two quick takeaways. First, it was hard to him to scrap the comment that he made at the Parliament. I believe he likely identifies himself as a ‘time-axis policy (forward guidance)’ governor. I do think he is against negative interest rate policy as he said it is harmful in terms of financial intermediary function but he possibly could not directly deny it. 

Secondly, Ueda’s presser started quite late at 7:15pm, in which Japanese markets were closed. If he were to make a drastic change in tone of his language, it would give foreign investors advantage over domestic investors in major products. I do feel governor Ueda would want to be data-oriented and maintain status quo.” — Bloomberg 

• This article first appeared in The Malaysian Reserve weekly print edition