[Japanese Market Conditions]Yen at 34-year low as Bank of Japan maintains policy, conscious of interest rate difference between Japan and the U.S. – Stocks rise – Bloomberg

In the financial and securities markets on the 26th, the yen hit a new 34-year low against the dollar. With the Bank of Japan’s decision to maintain monetary policy, yen selling became dominant due to the difference in interest rates between Japan and the United States, and the yen depreciated further during Governor Kazuo Ueda’s press conference. Japanese stocks widened their gains to close the day, and bond futures saw buying ahead in overnight trading. Bank of Japan Governor says if yen depreciation has a negligible impact on underlying prices, it will be a factor in his decision – policy will be maintained

At its monetary policy meeting on the same day, the Bank of Japan decided to maintain the policy rate for overnight uncollateralized calls at the current 0-0.1%. The decision to lift negative interest rates was just made at the previous meeting, which was in line with market expectations. As interest rates remain low, the interest rate differential with the US remains wide, and dollar buying and yen selling continue.

In the United States, where inflation is persistent, the Federal Reserve Board (Fed) has cut interest rates. There is awareness that the yen may be delayed, and the yen is experiencing a historic depreciation due to the difference in interest rates between Japan and the United States.The Bank of Japan believes that the weak yen will accelerate Japan’s inflation. Japan is cautious, and monetary policy will be influenced by the level of exchange rates in addition to prices.

Harumi Muguruma, chief fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said the Bank of Japan had “no response” to the yen’s depreciation. The yen has been depreciating in response to the meeting results, and the focus is on whether there will be any foreign exchange intervention by the authorities.If the yen’s depreciation does not stop, it could become a stimulus market that puts pressure on the Bank of Japan to bring forward interest rate hikes and tapering quantitative easing. I think it’s highly sexual.

The Bank of Japan The statement said that the policy for purchasing long-term government bonds will be implemented in line with the policy at the March meeting. March meeting The statement said that purchases of long-term government bonds “will continue at roughly the same amount as before,” with a note stating that the purchases are “approximately 6 trillion yen.” The note is no longer included in this statement.

At a press conference after the meeting, Bank of Japan Governor Ueda said that future monetary policy will be based on the economic, price, and financial conditions from time to time, and that “we believe that the accommodative financial environment will continue for the time being.” “If the underlying inflation rate rises, we will adjust the degree of easing,” he added. He also stated that monetary policy does not directly control foreign exchange rates, but that if it is an important factor that affects the economy and prices and has a non-negligible effect on underlying prices, it can be used as a basis for policy decisions.

Financial and securities market movements on the 26th
The yen fell 0.7% against the dollar to 156.73 yen per dollar. Temporarily hit 156.82 yen, the lowest price since May 1990 – further decline during Governor Ueda’s press conference
The closing price of June long-term government bond futures was 143.93 yen, down 22 sen from the previous day, and fell by 44 sen to 143.71 yen in the morning. In night trading, the price at one point rose to 144.35 yen, an increase of 42 sen compared to the daytime closing price. The yield on newly issued 10-year bonds rose 2.5 basis points (bp) to 0.915%, at one point reaching 0.93%, the highest level since November last year.
The closing price of the Tokyo Stock Price Index (TOPIX) was 2686.48, up 0.9% from the previous day. Nikkei Stock Average rose 0.8% to 37,934.76 yen

money order

The yen’s exchange rate accelerated after the Bank of Japan’s monetary policy announcement, dropping to the 156 yen level to the dollar for the first time since May 1990. As expectations for a US interest rate cut recede, there is no end to yen selling and dollar buying focused on the difference in interest rates between Japan and the US. There is a growing sense of caution about monetary authorities’ intervention in buying the yen. There was nothing new in Governor Ueda’s regular press conference, and yen selling has become even stronger.

Yujiro Goto, chief foreign exchange strategist at Nomura Securities, said that although preliminary reports had raised expectations for discussions on reducing the amount of government bond purchases, he said in a statement that the move would be carried out in line with the policy decided at the March meeting, saying, The yen is being sold on the assumption that there has been no change.” He added, “It seems like we have passed the Bank of Japan event, and the price has exceeded 156 yen, so we will trade while being aware of whether there will be an intervention like the one in September 2022.”

Mari Iwashita, chief market economist at Daiwa Securities, said that the Bank of Japan included the government bond purchases as a “note” in its statement in consideration of market turmoil, and that “the foreign exchange market had no choice but to react by selling the yen.” “I guess so.”

At a press conference after the Cabinet meeting on the morning of the 26th, Finance Minister Shunichi Suzuki said he was closely monitoring foreign exchange market trends and wanted to take all possible measures. He declined to comment on U.S. Treasury Secretary Janet Yellen’s remarks on Monday that currency intervention should be a rare event.

bond

Bond prices are falling. The market started with early selling in response to last night’s report that the Bank of Japan would reduce the scale of its purchases of government bonds and the rise in US interest rates. The rate of decline narrowed as the Bank of Japan announced in its “notes” that it would maintain its government bond purchasing policy. In response to the governor’s press conference, buy orders became predominant in night trading.

Kazuhiko Sano, chief bond strategist at Tokai Tokyo Securities, said that if the operation is carried out at the lower end of the current purchase amount range, the monthly purchase amount will be around 5 trillion yen, which will be reduced by 500 billion yen due to the reduction in government bond issuance. He pointed out that there is almost no need to change the range. “Assuming no range changes, long-term interest rates have risen to 0.93%, so there is no chance of yields rising any further,” he said.

Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, said he had been bracing himself since there were reports last night that the bank would reduce the scale of its purchases of government bonds, but there was no new information as the bank had been told it would maintain its current policy.

Newly issued government bond yield (as of 3pm)

	futures	2 year bond	5 year bond	10 year bond	20 year bond	30 year bond	40 year bond
	143 yen 93 sen	0.295%	0.500%	0.915%	1.680%	Not established	2.290%
The day before ratio	22 sen lower	-0.5bp	+0.5bp	+2.5bp	+2.0bp	–	Unchanged

stock

The Tokyo stock market was positive about the depreciation of the yen, and the Nikkei Stock Average, led by futures, rose by more than 460 yen at one point, before recovering to the milestone of 38,000 yen. Electronics stocks continued to rise, supported by the rise in US high-tech stocks such as Microsoft, and real estate stocks rose further in the afternoon. Insurance stocks also performed well.

Takehiko Masuzawa, head of trading in the equities department at Phillip Securities, said he had been preparing for the Bank of Japan’s decision-making meeting to reveal clues about policy revisions and hawkish content, but the yen’s depreciation and stock price hikes have been caused by buybacks. He said he was deaf.