What To Expect from the New BOJ Governor at the First Meeting?

Presided by new governor Kazuo Ueda, the first meeting of the Bank of Japan will be held on Friday, becoming one of the main focuses for the market players.

Ueda is expected to keep ultra-loose monetary policy unchanged; however, there is a good chance that he may consider abandoning references to coronavirus in further forecasts since the pandemic as an economic risk is dying down.

Even though these adjustments will have no major implications for monetary policy, investors may interpret them as the BOJ governor’s first step toward tightening. Change in the current dovish rhetoric from the central bank may eventually result in a gradual phase-out of its large-scale stimulus.

According to some analysts, improved communication between the BOJ and the markets may be the first task the former scientist will be faced with, which will make Ueda stand out in contrast to his predecessor Haruhiko Kuroda.

During the two-day meeting ending on Friday, the Bank of Japan's Board may discuss the adjustment of statements to abandon references to COVID-19. That being said, the actual implementation of the said adjustments may be postponed until June’s review of the interest rates.

It is also expected that on Friday the Bank of Japan will maintain its yield curve control (YCC) benchmarks at -0.1% for short-term rates and around 0% for ten-year bond yields. This is explained by the uncertainty as far as the global economic outlook and domestic wages go.

Aside from the references to the impact of the coronavirus pandemic, prospects of not keeping short-term and long-term interest rates at the current level or lower will be the rhetoric’s central idea. Analysts believe that a transition to less dovish rhetoric may imply a short-term YCC adjustment.

During his first press conference on April 10, Ueda remained pretty discrete, not leaving much room for making predictions about his next policies. He mentioned that the board "will discuss all options at each of policy meetings."

However, the market players may look for clues about the YCC adjustment timeframes by scrutinizing the Bank of Japan's quarterly report that will be released on Friday.

In addition, the BOJ meeting will be followed by a press conference where Kazuo Ueda will explain his first decision as the central bank’s chief.