Australian exchange foreign exchange trading reminder: the opening market is explosive! The governor of the Bank of Japan hinted that the biggest "black swan" may fly out at the end of the year, and the dollar/yen jumped sharply and opened more than 80 points lower

Sept. 11 - The yen strengthened against major currencies at the start of Asian trading on Monday as Bank of Japan Governor Kazuo Ueda signaled a possible end to negative interest rates, and the dollar and yen opened sharply lower by more than 80 points. "Ueda sounded hawkish in an interview," said Takeshi Ishida, currency strategist at Resona Bank Ltd. in Tokyo. "We expect negative interest rate policy to end in the first three months of 2024, and Ueda may have started to encourage the market to price in this situation."

On Monday (September 11), at the beginning of the Asian market, the yen strengthened against major currencies across the board due to the blockbuster signal from Bank of Japan Governor Ueda Kazuo that negative interest rates may end, and the dollar/yen jumped sharply lower by more than 80 points.

Bank of Japan governor hints at possible end to negative interest rates

Japan's Yomiuri Shimbun reported in an article on Saturday that Bank of Japan Governor Kazuo Ueda said the central bank may end its negative interest rate policy when the 2% inflation target is about to be achieved, hinting at the possibility of a rate hike.

In an interview with the Yomiuri Shimbun, Kazuo Ueda said that the Bank of Japan may have enough data by the end of the year to decide whether it can end negative interest rates.

"Once we are confident that we will see a sustained rise in Japanese inflation accompanied by wage growth, we have a number of options," Mr. Ueda said.

He added: "If we judge that Japan can achieve its inflation target even by ending negative interest rates, we will do so."

Under its negative interest rate policy, the Bank of Japan currently keeps short-term interest rates at -0.1%. The central bank has also capped 10-year government bond yields at around 0% as part of its efforts to reflate the economy and sustainably achieve its goals.

With inflation exceeding its 2% target for more than a year, the market is rife with speculation that the Bank of Japan will soon begin raising interest rates.

However, Mr. Ueda has repeatedly "poured cold water" on the idea, stressing that ultra-loose policy will remain in place until he is confident that inflation can be sustained at around 2 per cent on the back of steady demand and wage growth.

Mr. Ueda reiterated that stance in an interview with the Yomiuri newspaper, saying the BoJ would remain "patient" and continue its ultra-loose policy at this stage.

"While Japan is showing positive signs, our goal has not been achieved," he said.

Ueda Kazuo stressed that the Bank of Japan will not turn a blind eye to the risk of inflation exceeding the target. It has already seen that rising wages have begun to push up service prices, but the key is whether wages will continue to rise next year.

"We cannot rule out the possibility of having sufficient information and data by the end of this year," he said of the timing of ending negative interest rate policy.

Under the negative interest rate policy, banks and other Financial Institutions Groups are required to pay interest on excess cash held at the central bank in excess of what authorities say must be kept for security reasons.

The yen soared across the board

The yen rallied against all G10 currencies in early Asian trading on Monday on the back of hawkish comments from Bank of Japan Governor Kazuo Ueda on a possible end to negative interest rates.

(Image source: Bloomberg)

According to the report, Ueda Kazuo told the Yomiuri Shimbun that the Bank of Japan is likely to have enough information by the end of the year to judge whether wages will continue to rise - a key factor in deciding whether to end the ultra-loose policy.

The dollar/yen jumped sharply and opened more than 80 points lower, reaching a low of 146.62 at one point, falling by about 0.8% during the day.

(USD/JPY 30-minute chart)

Takeshi Ishida, currency strategist at Resona Bank Ltd in Tokyo, said: "Mr. Ueda sounded hawkish in an interview. We expect the negative rate policy to end in the first three months of 2024 and Mr. Ueda may have started to encourage the market to price in this scenario."

However, Ishida cautioned that with the US 10-year Treasury yield above 4%, it would be difficult for the USD/JPY to test its downside based solely on speculation of policy adjustments.

The widening interest rate gap between Japan and the US is a key factor in the yen's weakness, making the higher-yielding dollar naturally more attractive. The yen has fallen 11 per cent against the dollar this year, close to more than 30-year lows and close to where it was the last time Japanese officials stepped in to prop up the currency.

Traders have been on tenterhooks after Japanese officials said this month that they would not rule out any measures to address excessive market volatility, the first step towards intervention.

Wage growth for Japanese workers unexpectedly slowed in June, suggesting the job market may be losing some steam and casting a shadow over the outlook for Mr. Ueda's sustainable inflation target. The figures come amid growing calls across industries for higher wages, some of which are still in the pipeline.

"Wage growth remains weak and weakening," Commerzbank analysts Joseph Capurso and Kristina Clifton wrote in a currency strategy note. "We expect USD/JPY to regain upward momentum later this week."