How will the Bank of Japan move due to the rapid appreciation of the yen? The pressure to raise interest rates in July drops, and if not, it's positive for Japanese stocks! [Bank of Japan Meeting Preview]

The Bank of Japan will hold a monetary policy meeting on the 30th to 31st. The details of the decision will be announced around noon on the 31st, and President Ueda Kazuo's press conference will be held in the afternoon.
At the previous June meeting, a policy to reduce the purchase amount of long-term government bonds was decided, but the scale of reduction etc. was not shown, and it was decided that a specific reduction schedule for the next 1 to 2 years will be announced at the current July meeting.
At this July meeting,In addition to how much the pace of reduction in government bond purchases will be, the biggest focus is on the pros and cons of additional interest rate hikesIt becomes. According to the advance forecast,There is a large probability that neither rapid government bond purchase cuts leading to a rapid rise in interest rate levels nor interest rate hikes will be carried out, so it doesn't seem to be a major negative factor for the stock marketthat's it. Another background is that pressure on the Bank of Japan to raise interest rates is declining due to the current rapid appreciation of the yen. Conversely,If the market determines that the pace of government bond purchases and reductions is slower than expected, it will be a positive surprise for the stock market that weakens the yenThere is also a possibility that it will happen.

Consideration for avoiding rapid interest rate increases is positive for the stock market
When the Bank of Japan, which has been the largest buyer of government bonds until now, reduces purchases of long-term government bonds, the price of government bonds falls, leading to an increase in “yield = interest rate.” Generally, rising interest rates are viewed as a negative factor for both the stock market and the economy.
Regarding the purchase reduction of long-term government bonds, Governor Ueda said at the press conference after the June meeting that “as long as the amount is reduced, it will be a considerable scale,” but it seems unlikely that the details announced at the July meeting will have a major negative impact on the stock market.

The Bank of Japan held a “bond market participant meeting” on both July 9 and 10 to hear practical opinions from market participants. Whereas the purchase amount has been around 6 trillion yen per month until now, Bloomberg on the 22nd”The Bank of Japan is also aware that the view that it will be reduced to about 3 trillion yen per month after 2 years is one guideline for the market” is being reported. Furthermore, as the person concerned pointed out, “if long-term interest rates rise rapidly, it is expected that the Bank of Japan will continue to intervene in the market.”Stock market turmoil due to a rapid rise in interest rates is expected to be avoidedThat's it.
Conversely,If it is determined that the pace of reduction is slower than the market forecast, there is a possibility that a positive surprise will occur in the “fall in interest rate → depreciation of yen → appreciation of stocks”There is also one.

The majority of market participants expect “no interest rate hikes” in July
It's another focusThere is a strong view in the market that additional interest rate hikes at the July meeting will be postponed, and the stock market is following upThere is a high probability that it will become the wind of
In the Bank of Japan watcher survey conducted by Nikkei QUICK from 7/12 to 17, 18 out of 27 people answered that interest rates would not be raised in July, accounting for close to 70%. The most common forecast for the interest rate hike period was October for 10 people, with 9 people in July and 5 people in September (Nihon Keizai Shimbun dated 18th).
Even in a survey of economists from the 17th to 22nd by Bloomberg, the forecast for July interest rate hikes remained at 29% out of 48 people, down from 33% after the previous June meeting. The most common was 35% in October and 27% in September (Bloomberg, 24th).
Also, the Nihon Keizai Shimbun dated 18th calculated the probability of interest rate increases incorporated by the market from movements in the swap market where variable interest rates and fixed interest rates are exchanged. According to that, as of the end of June, the view of July interest rate hikes rose to close to 50%, but dropped to about 32% on 7/18. It is said that the probability of interest rate hikes until the September meeting is 67%, and it is over 100% until the October meeting.

Is interest rate hike “pressure” from the Kishida administration declining due to the current appreciation of the yen
One of the factors encouraging the Bank of Japan to raise interest rates is “politics.”There are calls from the Kishida administration for an early additional interest rate increase to correct the depreciation of the yen. Digital Minister Taro Kono said in an interview with Bloomberg on the 17th, “Yen is too cheap. They said, “It is necessary to return value” and “the Bank of Japan needs to raise policy interest rates.”
Minister Kono revised his statement that “monetary policy is decided by the Bank of Japan” at the press conference on the 19th (Asahi Shimbun dated 19th), but Prime Minister Fumio Kishida also stated at the Keidanren Summer Forum on the 19th that “normalization of monetary policy will support the transition of the economic stage” and “we will cooperate closely with the Bank of Japan while sharing the overall view of the economy with the Bank of Japan” (Nihon Keizai Shimbun dated 20th).
Furthermore, Secretary General Mogi Toshimitsu of the Liberal Democratic Party also reported in a lecture in Tokyo on the 22nd that “it is necessary to more clearly set out a policy to normalize monetary policy, including consideration of gradual interest rate hikes,” and “(monetary tightening) can basically be handled sufficiently from the management of Japanese companies” (Nihon Keizai Shimbun dated 22nd).

The reason behind the intensification of calls for interest rate increases from the Kishida administration to correct depreciation of the yen is that while import prices of crude oil, raw materials, etc. soar with the depreciation of the yen and prices rise (so-called import inflation), there are concerns that if the purchasing power of citizens continues to decline because real wages do not rise, it will spur a decline in support ratios. As the speculation of the Kishida administration, the current situation
Interest rate hike → yen appreciation → suppression of import inflation → improvement in the purchasing power of citizens → stopping the decline in approval ratings
I have a desire to change that trend. It is believed that the Ministry of Finance intervened on a total scale of 5 trillion yen on the night of both the 11th and 12th in order to induce an appreciation of the yen.
However, currently, the appreciation of the yen has progressed in response to heightened early interest rate cut observations by the US Federal Reserve and criticism of the depreciation of the yen by former President Trump, etc.Will the pressure to raise interest rates with the aim of correcting the depreciation of the yen weakeningThat is expected.

Materials supporting the postponement of interest rate hikes
In contrast to this, materials supporting the postponement of interest rate hikes stand out in current economic indicators.
Prices (core CPI excluding fresh food) based on the June consumer price index announced by the Ministry of Internal Affairs and Communications on 7/19 rose 2.6% from the same month last year, and the price increase rate has exceeded 2% for 10 consecutive months, but in the July consumer price index announced on the 26th, consumer prices (core CPI) excluding fresh food and energy only rose 1.5% from the same month last year.Aspects of import inflation represented by energy in rising pricesIt was clearly seen.
Also, according to the May monthly labor statistics survey announced by the Ministry of Health, Labor, and Welfare on the 8th,Real wages, taking into account price increases, are -1.4%, negative for 26 consecutive months, which is the longest everIt became. Furthermore, households with 2 people or more in May based on household budget surveys by the Ministry of Internal Affairs and CommunicationsActual consumer spending decreased by 1.8% compared to the same month last yearDoing it.

Prospects (outlook reports) for new economic and price developments will also be discussed at this July meeting. Bloomberg on the 22nd said, “There is a high probability that the view that consumer prices for fiscal year 26 will move around 2% of the target will be maintained,”The real growth rate forecast for fiscal year 24 is expected to be lowered from the previous 0.8% to around 0.5%” It is reported. The reason is that the GDP growth rate for January-March was lowered from -1.9% to -2.8% per annum on 7/1 due to drastic revisions to comprehensive construction statistics.

Why is the Bank of Japan cautious about raising interest rates
In other words, it is conceivable that there is the following gap between the scenario where the Bank of Japan will go through with interest rate hikes and actual economic indicators.

Governor Ueda seems to be taking a cautious stance in order to confirm that there is no such gap.
Also, the “interest rate hike → yen appreciation” scenario anticipated by the Bank of Japan moved contrary to expectations when negative interest rates were lifted in March. This is because the depreciation of the yen progressed in the form of being swallowed up by heightened observations where interest rate cuts were delayed in the US.

It is easy for the Bank of Japan to determine when to raise interest rates without being pulled by exchange rate trends
The two movements in the United States described above are rapidly changing the situation, with the Kishida administration and the Bank of Japan dealing with the depreciation of the yen in the background.
In response to a succession of indicators suggesting a slowdown in economic overheating in the United States, there are increasing observations that the Fed will cut interest rates in September as well. Another thing is that President Trump made a statement criticizing the depreciation of the yen.
In response to this, the yen has recently turned to a trend of appreciation, and pressure on the Bank of Japan to raise interest rates on the exchange side has declined.The Bank of Japan has an environment where it can consider the timing of interest rate hikes without being dragged by exchange rate trendsYou can also look at it like that.