Bank of Japan Governor: Whether to raise interest rates in July depends on the data, and will not send a strong policy signal by reducing bond purchases

After maintaining interest rates last week, the Bank of Japan has now caught the attention of investors. On Tuesday, Bank of Japan Governor Haruhiko Kuroda stated in parliament: "Regardless of reducing government bond purchases, a rate hike in July is possible. Buying Japanese government bonds and raising interest rates are two separate issues." Kuroda mentioned that a rate hike in July may depend on the data: The Japanese economy is gradually recovering, with data generally meeting expectations. Wage income growth will strengthen the benign cycle, leading to a gradual increase in prices. Attention is also needed on the impact of foreign exchange on the economy and inflation. The Bank of Japan will appropriately implement policies based on economic conditions. If the committee becomes more confident that inflation is moving towards the target, it will adjust the degree of monetary easing through rate hikes. He also stated that it is currently difficult to determine the scale of reducing government bond purchases, and cutting bond purchases will not send a strong policy signal. Last Friday, the Bank of Japan announced that the decision to reduce bond purchases will be made after the end of the July meeting, with the reduction expected to be significant. This announcement led some economists to delay their expectations for the timing of the BOJ's rate hike, believing that implementing two major policy adjustments simultaneously is not feasible. Investors are speculating on Kuroda's remarks to determine whether he is truly hinting at a rate hike or just trying to warn currency speculators to ease the pressure on the depreciation of the yen. Moody's economist Stefan Angrick stated last week that the Bank of Japan's latest monetary policy statement clearly indicates its intention to further reduce monetary support. The statement also mentioned that the economy is recovering, a view that contradicts poor economic data. Due to wage growth lagging behind inflation, domestic demand in Japan is struggling, while the momentum of basic price increases is cooling. However, the weak yen increases the likelihood of further rate hikes. During Kuroda's speech, the yen slightly rose, and the USD/JPY gradually rebounded after falling, reaching 157.64. The yield on Japan's 10-year government bond futures rose slightly to 0.944%.