The Bank of Japan may raise interest rates by the fourth quarter under the leadership of Kazuo Ueda, according to Eisuke Sakakibara.
(Bloomberg) — The Bank of Japan may raise interest rates by the fourth quarter under the leadership of Kazuo Ueda, according to Eisuke Sakakibara.
Nicknamed “Mr. Yen” for his ability to influence the currency during his tenure as Japan’s vice finance minister from 1997-1999, Sakakibara said Ueda may be compelled to act between October and December as domestic inflation quickens. The yen is likely to benefit, strengthening to around the 120 per dollar level this year from around 132 now, he added.
Ueda “may change his policy if the Japanese economy gets overheated, which is expected at this moment,” he said in an interview with Bloomberg Television. “He might be in a position to tighten monetary policy rather than continuing to ease.”
The nomination of Ueda, a university professor and former BOJ board member, is reinforcing bets for a shift in policy with traders boosting wagers that Japan’s interest rates will rise around July. Dubbed “Japan’s Ben Bernanke” by former Treasury Secretary Larry Summers, Ueda has been the subject of intense scrutiny since word of his appointment broke on Friday, with investors parsing his previous writings in an attempt to gain an insight into his views.
Traders have every reason to be on guard: rising yields may prompt Japanese investors to repatriate funds back home, drying up liquidity and exerting upward pressure on global borrowing costs. As it is, funds in the Asian nation have sold a record $181 billion of foreign debt and pumped ¥30.3 trillion ($230 billion) into the local government bond market, and there’s more than $2 trillion of bonds left to potentially sell.
Japan Nominates Ueda to Head BOJ Amid Pressure for Policy Shift
The yen, which has risen more than 15% from its October low, gained as much as 0.5% after the official announcement on Tuesday that Ueda was nominated to succeed outgoing Governor Haruhiko Kuroda.
Japan has “definitely” exited deflation and price growth would probably be around 2% for some time to come, said Sakakibara. “They will first stop easing monetary policy and gradually move toward tightening.”
–With assistance from Joanne Wong.
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