Central bank watchers knew it would be a surprise if BOJ governor nominee Kazuo Ueda gave any substantial hints about how he will consider policy normalization. Ueda reiterated that the BOJ’s current policy is appropriate. He noted that “Japan’s trend inflation is likely to rise gradually. But it will take some time for inflation to sustainably and stably achieve the BOJ’s 2% target.
FX traders were not surprised that Ueda did not signal he was in a rush to tweak Yield Curve Control (YCC). Ueda has not made a decision at a policy meeting since 2005, so he will likely refrain from providing any hints that lock him into any monetary policy stances.
The Japanese yen has rallied quite a bit on expectations that Governor Kuroda’s replacement would likely be quicker in abandoning YCC and eventually ending negative rates. Every BOJ watcher read Ueda’s opinion piece that said the BOJ must consider an exit strategy from its ultra-loose monetary policy and review its extraordinary stimulus. Traders are now realizing that Ueda is unlikely to provide any tightening of monetary policy signs anytime soon, especially before a policy review.
The yen won’t be rallying on tightening bets ahead of Kuroda’s last dance (March 10th meeting) and with incoming Governor Ueda’s first policy meeting in April.
