BoJ’s Ueda: Long term interest rates are determined in markets, reflecting various factors
Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday that long-term interest rates are determined in markets, reflecting various factors. Ueda added that the central bank will continue to closely monitor bond markets.
Key quotes
Generally speaking, long term interest rates are determined in markets, reflecting various factors.
Will continue to closely monitor bond markets.
Underlying inflation is approaching 2%.
Important to anchor inflation around 2% now.
Market reaction
At the time of writing, the USD/JPY pair is down 0.22% on the day at 158.28.
Ueda flags market-led yields as inflation nears target, supporting firmer Yen
FXS Speechtracker shows a 6.4/10 score versus Governor Ueda’s 6.8/10 historic average, pointing to a slightly softer but still constructive tone. The emphasis that long-term rates are set by markets and that bond markets will be closely monitored suggests a cautious shift away from strict yield control, which leans modestly hawkish for the Yen.
Ueda’s remark that underlying inflation is approaching 2% and must be anchored around that level reinforces the case for gradually normalizing policy. This combination of market-driven yields and near-target inflation supports expectations of reduced accommodation over time, underpinning a bias toward a stronger Yen if data continue to firm.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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