Japanese interest rates could overtake yen, stock market ahead of Ueda’s testimony by Investing.com

Investing.com – Bank of Japan Governor Kazuo Ueda is set to address parliament on Friday and faces a delicate task of briefing policymakers on future monetary policy given current market volatility.

Japanese stock markets have rallied steadily of late, with the index rising to an all-time high, while the yen fell to Y141 against the US dollar in early August from Y160 earlier this year, as trade in the yen was largely written off. .

Japanese interest rates are also rebounding, but are likely to delay the recovery in share prices and the pair, according to analysts at Nomura in an Aug. 20 note.

Easing concerns about a recession in the US economy contributed to a rebound in stock prices and a drop in the yen exchange rate.

“We believe the BOJ wants to avoid both the recurrence of persistent yen weakness and stock market destabilization,” Nomura said. “From that perspective, BOJ Governor Ueda’s testimony scheduled for Friday is likely to be more dovish than his press conference after July’s monetary policy meeting, but more demanding than Deputy Governor Uchida’s remarks on August 7.”

If Governor Ueda’s view that he does not consider 0.5% as the upper limit of the policy interest rate remains unchanged, then the current terminal rate price in the yen interest rate market is likely too low, the bank added.

However, there appears to be a lack of immediate catalysts for an uptick in terminal rate expectations, and the recovery in 5Y JGB yields may lag behind the recovery in equity prices and USD/JPY.

While the BOJ’s sharp turnaround at its monetary policy meeting in July came at the cost of increased volatility in the Japanese stock market, it achieved its main objective of curbing the yen’s depreciation.

At a press conference held on August 7, BOJ Deputy Governor Shinichi Uchida made conciliatory comments aimed at calming the stock market.

However, if the BOJ focuses excessively on stock prices and the JPY resumes its decline, the BOJ could find itself in the first place.

“We believe the BOJ is in a very difficult position where its communications must be sufficiently demanding to avoid a resurgence of stock market volatility while avoiding a return to JPY depreciation,” Nomura added.