Kazuo Ueda, the governor of the Bank of Japan, made it clear that if the economy improves as expected, he will continue to raise the benchmark interest rate. This move has boosted the yen.
Ueda said at an international conference hosted by the Bank of Japan in Tokyo that “we will adjust the degree of monetary easing as needed” to ensure that the central bank can achieve its sustainable price target if the upcoming data gives the authorities more confidence in meeting their economic expectations.
Shortly after he made the speech, the yen rose to 142.12 against the US dollar.
Despite Trump’s intermittent tariff policies continuing to disrupt global financial markets, Ueda’s remarks suggest that the Bank of Japan still believes its next move is likely to be another rate hike. This supports the market’s renewed expectation that the Bank of Japan is likely to raise interest rates again this year.
“Market views on the possibility of the Bank of Japan raising interest rates have changed significantly, but the Bank of Japan’s stance has not,” said Koichi Nakayama, chief economist at Okasan Securities and a former BOJ official. “The earliest the next rate hike could come is September.”
Although the theme of this year’s meeting is “New Challenges for Monetary Policy”, the governor seldom outlined the current monetary stance as comprehensively as Toshihiko Fukui did.
Zhong Shan, who had assisted in organizing this event during his tenure at the Bank of Japan, said, “This might be because, amid frequent issues such as tariffs, the Bank of Japan does not want to focus solely on an academic perspective and appear out of touch with reality.”
Ueda said, “Given the increasing uncertainties, especially those related to trade policies, we have recently lowered our economic and inflation forecasts.” He added, “However, we still expect that the underlying inflation rate will gradually move towards 2% in the second half of the forecast period.” He also noted that Japan is currently closer to its inflation target than at any time in the past three years.
Data released on Friday showed that the consumer inflation rate excluding fresh food accelerated to 3.5% in April, remaining at or above the Bank of Japan’s target for three consecutive years. It is expected that the data to be released this week will indicate that this trend will continue in May.
Ueda said that unlike in Europe and the United States, Japan is experiencing a second supply shock due to soaring food inflation, which deserves close attention.
Now, we are facing a new round of supply shock brought about by rising food prices. Our basic view is that the impact of food price inflation is expected to weaken. However, given that the current underlying inflation rate is closer to 2% than it was a few years ago, we need to be cautious about how food price inflation will affect underlying inflation.
Although prices have generally risen, the sharp increase in rice prices is particularly concerning. Previously, its price has nearly doubled, putting more pressure on household balance sheets. The government plans to release more rice reserves to cool the market and will also introduce subsidies for various energy sources, from gasoline to natural gas and electricity.
The Bank of Japan cut its growth forecast for the current fiscal year in half at its policy meeting earlier this month and pushed back its expectation for achieving the inflation target by one year.
These measures were seen as dovish, prompting many Bank of Japan watchers to delay their calls for a rate hike. After seeing positive developments including the Trump administration’s tariff deal with China, some have recently revised their views and now support a rate hike this year.
Technical analysis:
Gold: The price tested the yellow zone on our plugin overnight but did not break through, indicating that liquidity was not fully drained. For today, we maintain a buy stance but need to wait for momentum to return or for liquidity below to be swept again before attempting a long signal. For detailed positions, please refer to the plugin.
(Gold 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and write “666” in the message.
Nasdaq: Yesterday, the price tested the yellow zone as reminded by our plugin and then started to fall back. It still didn’t fully clear the liquidity above. Therefore, our strategy for Nasdaq 100 remains unchanged for today. If the rebound hits the supply zone resistance, we can consider shorting. At the same time, we also reserve the possibility of a second sweep of the liquidity above 21,250. If a second sweep occurs, we will consider shorting again. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: The current price has precisely entered the green zone we mentioned in the plugin yesterday. It is recommended that long positions continue to be held, with the target near above 62. Start to take protective measures. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key financial data and events to focus on:
French consumer price index for May 14:45
17:00 Eurozone May Economic Sentiment Index
18:00 UK May CBI Retail Sales Expectations Index
20:30 US April Durable Goods Orders (MoM) Preliminary Estimate
22:00 US Conference Board Consumer Confidence Index for May
