Ueda Says Right-Sizing BOJ Normalization ‘Keeps Me Awake 24/7’

(Bloomberg) -- Bank of Japan Governor Kazuo Ueda hinted that more interest-rate hikes are coming, saying that figuring out the right size and timing for further normalization of Japan’s easy monetary policy is his over-arching preoccupation.

“I think about what would be the right size of normalization in total going forward, and how best to allocate that total rate hikes across time,” Ueda said in answering questions Wednesday at an event in Washington, where he’s attending annual meetings of the IMF and World Bank. “That keeps me awake 24/7.” 

Ueda’s remarks add to signs that the bank is seeking the right timing for another rate hike, which most BOJ watchers expect will come by early next year. The governor also indicated that simply waiting isn’t necessarily the right solution — as sending only cautious messages in the face of uncertainty could lead to undesirable market positioning.

“When there’s huge uncertainty, you usually want to proceed cautiously and gradually,” Ueda said. “But a problem here is, if you proceed very, very gradually and create the expectation that rates are going to stay at low levels for a very long period, this could lead to a buildup of huge speculative positions — which could become a problem later.” 

Ueda spoke shortly after Japan’s currency slid as much as 1.4% to 153.19 per dollar on Wednesday, the weakest level since July 31. While the BOJ chief wasn’t directly asked about the yen’s moves, many BOJ watchers are looking at the yen closely, as that could be a key factor in bringing the timing of another rate hike forward.

Ueda and his fellow board members are widely expected to keep their benchmark rate unchanged at the next policy meeting, ending Oct. 31. Investors will be looking at that meeting for any intentions toward lifting the 0.25% benchmark rate in December or January. The current policy stance is still “fairly easy,” Ueda said Wednesday.

The BOJ’s rate hike in July, and its forward guidance for potential further increases, was viewed as helping trigger a wave of global market volatility in early August, when massive unwinding of yen carry trade positions unfolded.

The yen is still far from the 38-year low of around 162 it reached in early July, but its recent relatively rapid depreciation is reigniting concerns for currency intervention by the Ministry of Finance.

Speaking to reporters earlier Wednesday, Japan’s Finance Minister Katsunobu Kato declined to comment on the yen’s drop.  

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