BOJ Governor’s First Appearance Since Rout Has Investors on Edge

BOJ Governor’s First Appearance Since Rout Has Investors on Edge·Bloomberg
Toru Fujioka
3 min read
0

(Bloomberg) -- An appearance by the Bank of Japan’s Kazuo Ueda in parliament Friday has investors bracing for potential surprises after the governor’s hawkish rhetoric helped trigger a massive selloff in global stock markets earlier this month.

Most Read from Bloomberg

Japanese lawmakers will pepper Ueda with questions over the course of five hours. The first session starts at 9:30 a.m. in the lower house of parliament, with the second convening at 1 p.m. in the upper house. Each session runs for two and a half hours.

With his testimony coming hours before Federal Reserve Chair Jerome Powell’s speech at Jackson Hole, Ueda will likely endeavor to tread as lightly as possible in an effort to preserve market calm. BOJ watchers expect him to adjust the degree of hawkishness in his remarks while also pledging to carefully raise rates once the BOJ’s outlook materializes.

This is an unusual diet hearing, taking place when parliament isn’t in session. As such it reflects the misgivings some lawmakers have over the BOJ’s policy normalization process and the market ructions that followed the July 31 hike.

Ueda shouldered some of the blame for the market rout that temporarily wiped out as much as $6.4 trillion from global stock markets this month. A rise in the yen chased many speculators from the yen-carry trade, spurring the biggest plunge on record for the Nikkei 225. Markets have pared most of the losses.

Ahead of Ueda’s appearance the yen was little changed around 146.17 to the dollar at 7:50 a.m. in Tokyo after weakening overnight. The currency has swung between 144.46 and 148.05 against the dollar this week. If markets interpret Ueda’s comments as hawkish, the yen would likely erase its overnight losses.

What Bloomberg Economics Says...

“In our view, Ueda is unlikely to strike a dovish tone. We don’t think the yen’s surge or swings in the stock market have taken another rate hike off the table - and Ueda may indicate as much. This could spur another retreat in yen carry positions.”

— Taro Kimura, economist

Click here to read the full report.

Ueda is expected to hone closely to the tone set by his right hand man Shinichi Uchida, a deputy governor who sought to quell the market turbulence by saying the BOJ wouldn’t hike interest rates at times when financial markets are unstable. Uchida also said the BOJ should keep its benchmark rate unchanged “for the time being.”

For the most part calm has been restored since Uchida spoke on Aug. 7. With that in mind, market players will parse Ueda’s words and tone for the slightest discrepancy in signaling. Most economists still expect the BOJ to hike interest rates in the fourth quarter or in January, according to a survey taken earlier this month.

An added incentive for Ueda to stay as bland as possible is the political transition underway in Japan. With Prime Minister Fumio Kishida due to step down, Ueda will want to ensure he retains the trust of lawmakers. Kishida handpicked Ueda to lead the BOJ. The ruling Liberal Democratic Party’s leadership election on Sept. 27 will determine who will succeed him as premier.

While Ueda’s communications have generally been well received by BOJ watchers and lawmakers, he has faced fierce criticism on some occasions. In April he made remarks that indicated little sense of crisis over the rapid weakening of the yen. After Japan’s currency fell further, the government was forced to intervene in the market to stop the rout.

Ueda tends to give thorough and sometimes seemingly conflicting answers to questions posed by journalists and lawmakers. As the first former academic to become BOJ governor, Ueda has a tendency to consider different and sometimes opposing scenarios in his comments. It’s a trait that makes some at the central bank nervous, people familiar with the matter have told Bloomberg.

--With assistance from Mia Glass.

(Updates with market moves ahead of the event)

Most Read from Bloomberg Businessweek

?2024 Bloomberg L.P.

Advertisement