[Bank of Japan Decision Meeting Preview] Will the market stop the depreciation of the yen assuming a reduction in government bond purchases?

The Bank of Japan will hold a monetary policy meeting on the 13th to 14th. The details of the decision will be announced around noon on the 14th, and President Ueda Kazuo's press conference will be held in the afternoon.
At the previous April meeting, policy interest rates were maintained as expected by most market participants, but fell to historic levelsExpectations for action to stop the depreciation of the yen were disappointed, and conversely, the depreciation of the yen accelerated。It became a situation where the Ministry of Finance decided to intervene in exchange for a total amount of about 9.7 trillion yen. As the “bad depreciation of the yen” theory intensifies, the conventional correlation between “depreciation of yen = stock appreciation” weakens, and only interest rates rise (bond prices fall) due to uncertainty about the Bank of Japan's monetary policyConcerns about the “triple depreciation” of stock prices, yen, and interest rateshas also surfaced.
At the June meeting, we didn't follow the same path as last time,The view that the purchase and reduction of long-term government bonds will be decided to correct the depreciation of the yenhas been getting stronger, and since MarchWhether any kind of paving stone will be made for additional interest rate hikesis attracting attention.

Can we recover from the “failure” of the April meeting that led to exchange intervention?
At the April meeting, action was expected from the Bank of Japan leading to an increase in interest rates, such as a reduction in the purchase amount of long-term government bonds and suggestions on the prospects for additional interest rate increases, as a countermeasure against the fact that the depreciation of the yen progressed to a historic level for the first time in 34 years, but they were actually shouldered by a “zero response.”
On the contrary, at the press conference after the meeting, Governor Ueda answered “yes” to the question “Are the effects of the depreciation of the yen within a range that can be ignored at the moment?”The depreciation of the yen was accepted by the market, and the depreciation of the yen accelerated during the press conferenceThe result was to make me do it.
At the same time, since interest rate cut observations for the end of the year receded in the US and depreciation pressure on the yen intensified, the Ministry of Finance decided to intervene in the exchange rate of about 9.7 trillion yen from 4/26 to 5/29.Exchange intervention was carried out twice on 4/29 and 5/2It is seen as.
Governor Ueda then met with Prime Minister Kishida on 5/7”It was confirmed that the Bank of Japan will keep a close eye on the depreciation of the yen in terms of policy management“, at the House of Representatives Finance Committee on the 8th”Exchange rate fluctuations are more likely to affect prices compared to the pastStatements regarding the Bank of Japan's stance on the depreciation of the yen have been revised, such as”.

Even though interest rates have risen, the yen has not depreciated, and stock prices have stagnated
While the depreciation of the yen was unstoppable, interest rates continued to rise.
The beginning was in the “main opinions” of the April meeting announced on 5/9, which could not be read from the contents of President Ueda's press conferenceMore than a few “hawkish” messages were includedThat's it. “Depending on the economy, prices, and financial conditions,Adjusting the degree of monetary easing by implementing moderate interest rate increases is also an optionIt can be thought of as “”It is necessary to deepen discussions on the timing and extent of policy interest rate hikesThere were also references to interest rate hikes, etc.” Also,”Regarding the purchase of long-term government bonds, it is good to indicate the direction of reduction somewhere」「It is important to seize opportunities and proceed with government bond purchases reductions while observing market trends and government bond supply and demandThere were also opinions on the reduction in government bond purchases.
Furthermore, in the regular government bond purchase operation (open market operation) notified by the Bank of Japan on 5/13, the planned government bond purchase amount with a remaining period of 5 to 10 years or less was 425 billion yen, which is 50 billion yen less than the previous 475 billion yen, and the market announced”Reduction at an unexpected timingIt was accepted as”, leading to an increase in interest rates. On 5/24Interest rates on 10-year government bonds exceeded 1% for the first time in 12 years。
As a result, the market moved in a form contrary to Governor Ueda's intention that “the level of long-term interest rates should be left to the market,” where uncertainty about the Bank of Japan's policy outlook would raise interest rates.
During this time,The Nikkei Stock Average stagnated mainly in the 38,000 yen range, and concerns about the “triple depreciation” of stock prices, yen, and interest rates also surfacedIt was decided to do it.

Will additional interest rate hikes, which have been anticipated earlier due to the depreciation of the yen, pave the way for the June meeting?
At this meeting,The view is that while maintaining the current state of policy interest rates, the purchase reduction of long-term government bonds will be decidedThere are a lot of them.
According to a survey of market participants conducted by QUICK in May,65% expect a reduction policy decision at the June meeting。As for the period of additional interest rate hikes, July is the highest at 38%, October is 32%, and September is 15%It has become.
Also, in a questionnaire survey of 51 economists conducted by Bloomberg from 5/31 to 6/554% will decide on a reduction in government bond purchasesI'm looking forward to it.As for the timing of additional interest rate hikes, there were almost no predictions for June, and both July and October lined up at 33%。
At the stage where the April meeting was held, there were many views that additional interest rate hikes would be around fall, mainly in October, but due to the progress of depreciation of the yen after the April meeting,The view that additional interest rate hikes aimed at correcting the depreciation of the yen will be brought forwardis spreading.

Governor Ueda has set a policy to avoid the occurrence of discontinuity in monetary policy, so if interest rate hikes in July are in view, there is a possibility that there will be some suggestions at the June meeting.
However, Governor Ueda himself said at the House of Councilors Finance and Finance Committee on 6/6 about indicators of inflation forecasts, “It has risen slightly,It hasn't reached 2% yet, and it's a bit far. Since this becomes established at 2%, the actual inflation rate will also continue to move at 2%,” he said, showing recognition that the price stability target with an inflation rate of 2% has not yet been reached. Market predictions regarding additional interest rate hikesThere is a possibility that it is ahead of the Bank of Japan's perception of the current situationAlso, attention is being paid to what kind of message the Bank of Japan will use to “collide” with the market at the June meeting.

How will the approaching “world with interest rates” affect stock prices and the economy?
Interest rate expectations (decline in bond prices) are spreading in the market, and there is a movement to refrain from purchasing bondsIt's also out. Regarding bond management for this fiscal year, many life insurance companies have clarified policies to refrain from purchasing ultra-long-term bonds until interest rates rise to a certain extent.
In terms of government bond yields, increases over a short period of time have also become noticeable. The yield on 1-year, 2-year, and 5-year government bonds was in the 0.2%, 0.4%, and 0.6% ranges, respectively, for the first time in 15 years since 2009, from the end of May to the beginning of June.There is a possibility that the market is aware of policy changes ahead of time in response to “continuation of an accommodative financial environment,” which is the Bank of Japan's policyThere is also one.
On internet news, etc., interest is also growing about raising the level of variable interest rates, which account for the majority of mortgages. In fact, SBI Sumishin Net Bank and AEON Bank are in MayThe base interest rate for a variable interest rate mortgage was raised by 0.1%. Also, in the same month, SBI Sumishin Net Bank became the base interest rate for loans to companies, etc.Short-term prime rate also raised by 0.1%It's done,The footsteps of a “world with interest rates” have begun to be heard in corporate activities。Interest rate expectations are also linked to strong stock prices related to banks, which are “stocks with rising interest rates”。
However, generally speaking,A rise in interest rates has the function of suppressing the economy and has a negative effect on stock prices and private consumptionIt is supposed to be. As global interest rates move towards interest rate cuts, such as Canada and the EU cutting interest rates, the Bank of Japan is aiming to raise interest ratesJapanese version of “Soft Landing”Attention is being paid to how the path to this will be shown.