Following its latest interest rate decision, the Bank of Japan has managed to keep financial markets relatively stable, with the yen trading within a narrow range despite remaining at historically weak levels. On Tuesday, the intraday trading band for the dollar against the yen was a mere 0.43 yen, marking the smallest fluctuation on the final day of a BOJ meeting since January 2021. Concurrently, Japanese government bond yields edged higher, while the Nikkei 225 index briefly surpassed the 70,000-point milestone for the first time.
As of Wednesday morning in Tokyo, the yen continued to trade above 160 per dollar, hovering near the level that prompted the Ministry of Finance to intervene in late April to support the currency. Given this threshold, investors remain watchful for the possibility of renewed intervention, especially after Finance Minister Shunichi Suzuki stated multiple times in May that his team is prepared to act again at any moment.
In a report, strategists Koichi Sugisaki and Hirofumi Uesato from Morgan Stanley MUFG Securities noted, "Given the continued verbal intervention by Ministry of Finance officials, many investors remain alert to the risk of actual FX intervention. Consequently, we continue to expect USD/JPY to trade within a certain range."
While the risks of currency intervention and the upcoming Federal Reserve interest rate decision could collectively exert influence, the market stability offers some reassurance to BOJ officials. On Tuesday, the Bank of Japan raised its benchmark interest rate to its highest level since 1995, as anticipated, and also decided to halt its reduction of bond purchases, aligning with widespread market expectations.
The focus of the meeting was the press conference held by BOJ Deputy Governor Shinichi Uchida. The seasoned central banker stepped in to lead the briefing after Governor Kazuo Ueda was hospitalized last week due to a liver cyst infection. This marked the first time since 2010 that a BOJ policy meeting was held without the governor in attendance.
Ahead of the meeting, BOJ watchers were keenly observing whether Uchida—widely regarded as one of the architects of the central bank's policy framework over the past two decades—might communicate more directly than Ueda typically does. Uchida delivered few surprises, with his implied hawkish stance aligning with the policy statement. The deputy governor indicated that underlying inflation risks rising above the 2% target and that the central bank will continue raising rates to avoid falling behind the curve.
Mari Iwashita, chief market economist at Daiwa Securities, commented, "My impression is that he performed solidly. His remarks confirm that the BOJ's policy focus has shifted to inflation risks. In this context, the rationale for continuing to raise interest rates remains robust."
Masato Ueda, managing director at SBI FX Trade, described Uchida's press conference as "almost perfect." He pointed out that Uchida struck a balance by acknowledging upside inflation risks while also emphasizing the accommodative monetary environment. Ueda added that Uchida avoided giving clear hints about the possibility of accelerating the pace of rate hikes, stating, "The person who understands the actual situation better than anyone explained the current state in a logical and concise manner and carefully answered each question one by one."
After the BOJ statement was released, the yen weakened slightly to 160.35 per dollar and remained around that level following Uchida's press conference. This contrasts with previous briefings that triggered sharp sell-offs, ultimately prompting government intervention. After the last BOJ meeting concluded on April 28, Ueda's press conference led to a decline in the yen as traders perceived his comments as insufficiently hawkish. Two days later, the Ministry of Finance intervened, ultimately spending a record 11.73 trillion yen (approximately $73.2 billion) over the following month to support the currency.
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