In the financial and securities markets on the 11th, long-term interest rates soared on speculation that Bank of Japan Governor Kazuo Ueda had signaled tightening of monetary policy, including ending the negative interest rate policy. Due to high interest rates, the yen rose sharply in the foreign exchange market, and bank stocks rose sharply in the stock market.
Long-term interest rates rose 5.5 basis points (bp, 1bp = 0.01%) to 0.7%, the highest level since January 2014. The Yomiuri Shimbun reported in its morning edition on the 9th that Governor Ueda acknowledged that there is a possibility that the data needed to determine a virtuous cycle in wages and prices will be ready by the end of this year. As expectations for early financial normalization spread across the market, the yen appreciated, bank stocks were bought, and real estate stocks fell.
The Bank of Japan announced in the afternoon that it would carry out a five-year common collateral funding operation on the 14th. The market sees this as an attempt to curb the rise in interest rates, and the rate of increase in long-term interest rates was temporarily reduced slightly.
Yield on newly issued 10-year bonds rises to 0.7%, highest level in 9 years and 8 months – dollar/yen temporarily declines by 1.1% to 146.23 yen for one week after Bank of Japan’s announcement of common collateral operation The Tokyo Stock Price Index (TOPIX), which sees the dollar weakening and the yen strengthening for the first time, fell 2.29 points (0.1%) to 2,356.73 – Bank stocks led the increase, real estate stocks led the decline – 1:30 p.m. Nikkei Stock Average was 140 ¥88 (0.4%) lower to ¥32,465.96
Even with the government’s verbal intervention, the yen’s depreciation is hard to stop in the foreign exchange market, and consumer prices, including the rise in crude oil prices and import prices, continue to rise at the 3% level. The Bank of Japan made the operation of long-term and short-term interest rates (yield curve control, YCC) more flexible in July, and speculation about the timing of financial normalization, which had been floating in the market, appears to have been brought forward in response to the governor’s remarks. is.
Bank of Japan Governor Ueda
Photographer: Akio Kon/Bloomberg
Mari Iwashita, chief market economist at Daiwa Securities, points out that foreign exchange rates are part of the Bank of Japan’s policy response function. Regarding the YCC flexibility in July, it said in a report dated November 11, “It appears that the decision was made earlier in consideration of the weaker yen.” The main scenario (with a 60% probability) for the end of negative interest rates, which had previously been set for the second half of 2025, has been moved up to April next year.
Naoya Hasegawa, senior bond strategist at Okasan Securities, also pointed out that the possibility that the abolition of YCC and the termination of negative interest rates will be decided at a meeting within this year cannot be ignored. Although we believe that policy revisions will be made in January 2024 at the earliest, we believe that the content of the report gave a sense that not only the abolition of the YCC, but also the end of negative interest rates is not far away.
The Bank of Japan will hold a monetary policy meeting on the 21st and 22nd of next week. In the near term, the content of Governor Ueda’s press conference to be held on the afternoon of the 22nd after the policy decision will attract the attention of market participants, and after that, the “Outlook Report on the Economic and Price Situation” will be announced at the October meeting. The next focus will likely be on whether there will be any changes in the outlook for prices.
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2023-09-11 04:45:42
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