TOKYO - A special feature focuses on central banks, markets, and politics from the perspective of over 30 years of experience, with veteran economist Ueno Yasunari offering his insights.
Ueno is Chief Market Economist at Hosho Securities. After joining the Board of Audit in 1986, he moved to Fuji Bank, one of the predecessors of today’s Mizuho Bank, in 1988. He became Chief Market Economist in 1994. In Nikkei Veritas surveys of analysts covering bonds and foreign exchange, he has ranked first seven times and second nine times out of 18 surveys.
The Bank of Japan will hold its Monetary Policy Meeting on June 16th and 17th, where it plans to release an interim review on its reduction of government bond purchases. Ueno, who has observed central banks, markets, and politics for over three decades, analyzes the current situation.
The BOJ has been reducing its government bond purchases since July last year. The upcoming meeting will include an interim assessment in light of the rise in super-long-term interest rates this spring. Ueno said: "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 current pace of quarterly reductions of 400 billion yen to continue until March next year. "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 is also watching the Ministry of Finance’s Primary Dealer Meeting scheduled for June 20th. The primary dealers are financial institutions that participate in government bond auctions under special conditions while taking on certain obligations. Speculation is growing that the ministry may cut the issuance of super-long-term bonds, which could help ease supply-demand imbalances.
At the same time, political debate over a potential consumption tax cut has emerged ahead of the Upper House election, drawing attention to fiscal policy. Asked whether long-term interest rates might stabilize, Ueno said: "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 ahead, the market will shift focus back to the BOJ’s future rate 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 said. Depending on where the terminal rate settles, 10-year yields could 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 year, there was speculation about a possible rate hike as early as June. That talk has largely subsided, but Ueno shared his expectations for next week’s policy meeting. "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
