USDJPY: Japanese Yen Weakens Against Dollar on Ueda’s Speech

The USDJPY currency pair was trading up over 115 pips after the incoming Bank of Japan (BoJ) Governor Kazuo Ueda testified before the Japanese Parliament, indicating that he would continue with his predecessor’s easy-money policies.

Investors were disappointed by Ueda’s remarks, given that Japanese inflation has been above the BoJ’s 2.0% inflation target for the past none months and recently hit a 40-year high of 4.2% in January, underscoring the need for higher interest rates to curb the rising inflation.

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However, according to Ueda, Japan’s inflation is mainly imported and not based on higher local demand. Hence, there is a need to keep stimulating the Japanese economy to boost domestic consumption, which outgoing BoJ Governor Haruhiko Kuroda has been doing for the past decade. 

Ueda’s comments were unexpected, given that the Japanese government, through the finance minister, Shun’ichi Suzuki, has expressed concern about the rising inflation and the need for tighter monetary policies to reign in inflation. 

Kazuo Ueda is expected to take over as BoJ Governor next month as Haruhiko Kuroda’s second term ends. The Japanese government has also expressed concern about the policy divergence between Japan and other G7 countries, which have all been hiking interest rates. 

Many will be keen to hear more from Ueda, including his plans to tame inflation, but his first speech was not encouraging. However, many hope his tone will change with time if the government pressures him to change tact. 

Japan’s ultra-loose monetary policies have been criticised for decades, with many arguing that the country’s ageing population is the real problem. The country’s population has been ageing fast, yet its brith rate has remained relatively low compared to other countries. 

Economists have pointed at Japan’s population as the main problem why efforts to stimulate the country’s economy over the past two decades have failed to trigger higher consumption. It is well-established that countries with young populations tend to have higher consumption as the young people mature, start and raise families. 

The yen’s future looks bleak if Ueda does not implement tighter monetary policies. 

*This is not investment advice. 

The USDJPY price chart. 

The USDJPY currency pair rallied higher as the yen weakened against the dollar on Ueda’s speech.