On the morning of November 30th, Beijing time, at 1 AM when traders were preparing to wrap up their week's work, an unexpected statement came from Haruhiko Kuroda, Governor of the Bank of Japan.

Under this influence, the USD/JPY short-term once plunged by over a hundred basis points, and the yen bulls pierced the key resistance level of 150 again.

Market participants are closely watching whether the Bank of Japan will raise interest rates from 0.25% to 0.5% at the policy meetings scheduled for December 18-19 this year, or January 23-24 next year. Kuroda's lengthy interpretation on the trend and considerations for a rate hike was given, but he remained tight-lipped about the specific timing.

Repeated statements on rate hikes

In an interview excerpt published in a Japanese local media at 1 AM, Kuroda responded to the question of whether the next rate hike is approaching by saying, 'It is nearing,' as economic data is moving in the right direction.

The Governor of the Bank of Japan also added a 'but' - there remains a significant question mark over the US economic outlook. Currently, monetary policy makers in Japan want to confirm what kind of policies (Trump) will implement. For example, tariff issues have now surfaced, and the progress of this matter needs to be monitored.

He stated that if the Bank of Japan is confident in the economic development as forecasted, it will adjust the degree of monetary policy easing at the appropriate time, especially when the core inflation rises to 2% in the latter part of the outlook period (from the fiscal year 2024 to the fiscal year 2026).

Ueda Kazuo also revealed that the Bank of Japan will release a broad perspective evaluation of the monetary policy over the past 25 years at the December monetary policy meeting. Over approximately 30 years, the Bank of Japan has implemented various easing measures, hoping this report can quantitatively capture the effectiveness or ineffectiveness of these measures as much as possible.

Regarding the issue of yen depreciation, Ueda Kazuo also emphasized the need to comprehensively consider how exchange rates affect inflation and outlook. For example, in the first half of the 2010s, yen appreciation was a headache for Japan, which was then in deflation. However, if the yen further depreciates when the inflation rate exceeds 2%, the central bank may have to take measures to address the significant risks.

Other key points of Q&A

What indicators are considered when deciding to raise interest rates: Especially important are wage trends and the progress of wage-to-price pass-through. The results of wage increases in 2024 are consistent with the rise in the long-term price index, and the key is whether this increase can be sustained. In terms of wages, it will be interesting to see the momentum of the spring labor negotiations in 2025.

Where is the neutral interest rate: Based on parameters from past data, staff predict a range between -1% and 0.5%, but it is difficult to estimate the actual level. The central bank will have to gradually calibrate the level of the neutral interest rate by analyzing the economy's response to raising and lowering rates. If core inflation hovers around 2% in the mid to late period of the fiscal year 2026, the Bank of Japan's policy rate will be close to the neutral rate.

Will the economic growth rate increase when inflation rises: If zero inflation and wage growth continue, the mentality of businesses focusing only on cost reduction will become widespread, and there will be hardly any forward-looking innovative initiatives to raise prices based on innovation. In a way, the Bank of Japan hopes to create a specific dynamic.

Financial system risks: There isn't much concern about Japan's financial system, while the adjustment of commercial property in the USA is still ongoing. Although systemic risks are unlikely, this situation should be closely monitored with a vigilant mindset. At the same time, non-bank financial institutions are facing serious issues, and their activities need close monitoring due to the lack of clear regulations applicable to them.

Editor / jayden