The Bank of Japan is more hawkish than expected.

The Japanese yen experienced more pronounced fluctuations than expected following the Bank of Japan’s (BoJ) policy meeting today. This led to the USD/JPY retracting towards the 147.00 level after reaching an intraday peak of 148.55 overnight. Governor Ueda’s comments during the accompanying press conference were the key driver of the yen’s gains, hinting at the BoJ’s consideration of a potential rate increase. However, Governor Ueda stopped short of offering a specific timeline for exiting negative rates.

During the press conference, Governor Ueda conveyed increased confidence in achieving the 2.0% inflation target, stating that the likelihood was “rising gradually.” He also shared positive feedback from major Japanese companies regarding wage hikes for the upcoming fiscal year, highlighting a higher number of firms opting for increases compared to the previous year’s figures. Although uncertainties exist about the widespread adoption of these wage hikes, expectations are that they won’t match the levels of the previous year. The prevailing belief is that once the Bank of Japan gains confidence in the sustainability of stronger wage growth in the upcoming fiscal year, it will signal the final step before initiating rate hikes.

While the Bank of Japan (BoJ) expressed confidence in reaching the price target, Governor Ueda avoided specifying the exact timing for the first-rate hike. He highlighted the difficulty in quantifying the proximity to exiting negative rates but hinted at the possibility of multiple rate hikes, indicating it won’t be a one-time event. Governor Ueda concluded by emphasizing that the BoJ would end its negative rate policy when it deemed the achievement of the 2.0% inflation target was imminent.

In all, the stance was slightly more hawkish than anticipated, although it may have fallen short of constituting a surprise from the central bank.