(Reuters) – Incoming Bank of Japan (BOJ) Governor Kazuo Ueda said on Friday it was appropriate to maintain ultra-loose monetary policy as inflation has yet to sustainably and steadily meet the central bank’s 2% target.
COMMENTARY:
NAKA MATSUZAWA, CHIEF STRATEGIST, NOMURA, TOKYO
“He’s dovish, as expected; or at least he’s not saying anything specific about a policy change.”
“I think he’s intentionally doing that, so that the market will calm down a little bit about policy change expectations.”
“There are three things I’m basically looking out for (from Ueda and his two deputies). One is how they think about the side effects of YCC, particularly the negative rate policy.”
“I’m also looking for whether they think the global economy will have a soft landing or enter a recession; if they think there will be a soft landing, particularly for the U.S. economy, it increases the chance of a policy change at the BOJ.”
“The third is Ueda’s view on inflation. He said in July last year that current inflation is not sustainable because it’s basically cost push. But as of now, his assessment doesn’t really seem to have changed.”
SEAN CALLOW, SENIOR CURRENCY STRATEGIST AT WESTPAC, SYDNEY
“The skittishness of USD/JPY seems indicative of how scarred investors remain from the December shock. But overall, Ueda is working hard to present himself as delivering continuity – at least to start with. Now is not the time to put his own stamp on policy, that’s not why the government selected him.”
TAKAFUMI YAMAWAKI, HEAD OF JAPAN RATES RESEARCH, J.P.MORGAN SECURITIES, TOKYO
“From what he has said so far, it sounds like he is a dove.”
“I don’t think Ueda has the same stance as (Haruhiko) Kuroda but it is not clear whether Ueda would tweak the BOJ policy as the market expected.”
“This could be a risk for short-sellers, which is why futures rose today.”
TINA TENG, MARKET ANALYST, CMC MARKETS, AUCKLAND
“Ueda did not provide a clear clue for further monetary policy but he did mention that the monetary policy needs to ‘respond to demand-driven inflation but not immediately respond to supply-driven inflation’, implying that he may remain with the ultra-loose policy as we are facing a supply-driven inflation issue globally.”
“But market participants tend to bet for a further tightening step by the BOJ after April when the new governor takes power, causing an immediate spike in the Japanese Yen.”
CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE
“No surprises there, we expected Ueda to take it slow and he’s starting off echoing Kuroda’s views. He has been out of touch with the BOJ policy making since 2005 and will take time even if he was to consider policy normalisation at some stage.”
“His neutral comments, coming against the market’s hawkish expectations and together with the rising global yields, suggest the yen could embark on a weakening trend again once we are past this volatility.”
ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE
“Ueda appears to be following closely the existing BOJ policy script, which is unsurprising to us as we doubt that he is going to execute an abrupt policy pivot once in office. Policy normalisation in Japan is happening, but it will be a very gradual and cautious process.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“There have been high hopes that Ueda will bring a hawkish twist to the BOJ, but early remarks in his confirmation speech say anything but.”
“He has echoed similar comments from other BOJ officials in recent days, stating that the BOJ’s current monetary easing is appropriate, it takes time for the impact of monetary policy to be felt in the economy and that economic uncertainties are high.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“He (Ueda) wants to watch developments in micro economy, mentioned that it is important to create environment for wage growth and put an emphasis on clear communication with financial markets.”
“This reinforces our initial view that he is likely to adopt a gradual and moderate approach as he monitors further data/ development to get a better gauge of economic conditions at home.”
“On net, his comments so far suggest he could still keep current policy settings in place but it is still early days to form an impression of his policy leaning at this point.”
MOH SIONG SIM, CURRENCY STRATEGIST, BANK OF SINGAPORE, SINGAPORE
“It seems to be a continuation of the stance taken by (Haruhiko) Kuroda, though I think it’s difficult to tell right now. He’s treading a fine line in the sense of trying to find a way to exit (YCC) without being too disruptive on the dollar/yen direction.”
“It’s not a surprise that he’s sounded the way he is to get the market not too excited. The market is trying to read the policy bias. However, this may not matter too much, as picking Ueda in itself is a strong signal… that the government may increasingly want a departure from the past policies.”
“He hasn’t really said all that much as whether he’s for or against the dovish policy.”
BACKGROUND:
* The government has nominated academic Ueda to head the Bank of Japan as the decade tenure of Governor Haruhiko Kuroda nears its close.
* Unlike Kuroda, who arrived with a clear mandate to beat deflation with massive stimulus, Ueda faces the delicate task of phasing out his predecessor’s radical and complicated policy framework without derailing a fragile economic recovery.
* Nearly half of Japanese firms say that new leadership at the central bank should revise its negative interest rate policies, while more than a quarter say its price target should be changed, according to a Reuters monthly poll.
* As the first post-war BOJ governor to come from academia, Ueda brings a wealth of experience helping guide the Japanese economy through rough waters – including during his time at the central bank’s nine-member board from 1998 to 2005.
* Upon approval by parliament, Ueda will assume the top BOJ post on April 9 and chair his first policy-setting meeting on April 27-28.
(Reporting by Asian bureaus; Compiled & edited Subhranshu Sahu)
