Central Banks and Markets: A Perspective of Over 30 Years

Ueno is Chief Market Economist at Hosho Securities. After becoming a member of the Board of Audit in 1986, he moved to Fuji Bank, one of many predecessors of right now’s Mizuho Bank, in 1988. He grew to become Chief Market Economist in 1994. In Nikkei Veritas surveys of analysts overlaying bonds and overseas change, he has ranked first seven occasions and second 9 occasions out of 18 surveys.

The Bank of Japan will maintain its Monetary Policy Meeting on June sixteenth and seventeenth, the place it plans to launch an interim assessment on its discount of presidency bond purchases. Ueno, who has noticed central banks, markets, and politics for over three a long time, analyzes the present state of affairs.

The BOJ has been lowering its authorities bond purchases since July final 12 months. The upcoming assembly will embrace an interim evaluation in gentle of the rise in super-long-term rates of interest this spring. Ueno stated: “Long-term yields have risen and fluctuated considerably, creating some instability. I think the BOJ will be careful not to stir up further volatility. However, the fundamental direction remains to shrink the BOJ’s balance sheet by reducing government bond purchases.”

He expects the present tempo of quarterly reductions of 400 billion yen to proceed till March subsequent 12 months. “This is the most likely scenario based on Governor Ueda’s remarks. The focus will shift to what happens from April onward. While most expect a further reduction, I believe the BOJ will proceed flexibly, slowing the pace of reductions as necessary to avoid excessive market pressure.”

Meanwhile, the market can be watching the Ministry of Finance’s Primary Dealer Meeting scheduled for June twentieth. The major sellers are monetary establishments that take part in authorities bond auctions beneath particular situations whereas taking over sure obligations. Speculation is rising that the ministry could reduce the issuance of super-long-term bonds, which might assist ease supply-demand imbalances.

At the identical time, political debate over a possible consumption tax reduce has emerged forward of the Upper House election, drawing consideration to fiscal coverage. Asked whether or not long-term rates of interest would possibly stabilize, Ueno stated: “The peak may already be behind us, but I expect some instability to persist for a while. It’s helpful to separate this into two areas. For the super-long-term zone, demand from life insurers has declined sharply due to regulatory reasons, while the Ministry of Finance has been slow in adjusting issuance. Reducing issuance through the Primary Dealer Meeting could help restore supply-demand balance for super-long-term bonds.”

Looking forward, the market will shift focus again to the BOJ’s future fee hikes. “Currently, the policy rate stands at 0.5%. Before the Trump tariff shock, some expected it to rise to 1.5% next year. But now, after the shock, many forecast 0.75%, with some seeing 1% as the upper limit or even no further hikes from the current 0.5%,” Ueno stated. Depending on the place the terminal fee settles, 10-year yields might fall. “If rates stay at 0.5%, 10-year yields may drop below 1%, possibly toward 0.8%, which would be bullish for bonds.”

Earlier this 12 months, there was hypothesis a couple of attainable fee hike as early as June. That speak has largely subsided, however Ueno shared his expectations for subsequent week’s coverage assembly. “The risks from overseas factors like the Trump tariffs have not disappeared, so I think additional rate hikes will be put on hold. However, regarding wages and prices, conditions remain on track with the BOJ’s scenario. To use a baseball analogy: with a runner already on second base, even a single hit could bring in a run. We are at that stage where the conditions are favorable, but a decisive moment has not yet arrived.”

Source: テレ東BIZ