Kazuo Ueda turned hawkish after the G20, prompting a sharp rise in the yen and raising the risk of long-term investment in Japanese assets.

■Chen Hongrui

Recently, after attending a meeting of the Group of 20 (G20) finance ministers and central bank governors in the United States, Bank of Japan (BOJ) President Kazuo Ueda said at a press conference when raising interest rates, "I hope to fully discuss it at every meeting, including the next financial policy decision meeting." This is a more open attitude towards interest rate hikes than in the past. The market interpreted it as a hawkish statement. The yen surged after this statement. From now on, the long-term investment risks of Japanese assets are increasing.

Source:: Finance M Square

Kazuo Ueda switches to "Eagle" post-G20, boosting yen's surge

The main reason is that the BOJ’s past monetary decision-making history often made historically wrong decisions at critical junctures, such as the slow rate reduction after the real estate bubble burst in the 1990s, the 2006 interest rate hike and the reduction of the balance sheet when the economy was just beginning to emerge from the deflationary quagmire. The author believes that it is appropriate for the BOJ to raise interest rates to the current 1% base rate and slowly shrink the balance sheet, but if it starts now They have begun to worry too much about inflation and adopted more aggressive monetary policies (for example, BOJ hawkish review member Hajime Takada recently bluntly stated that the next interest rate increase "may not be 0.25 percentage points," and the fixed rhythm of raising interest rates every six months should not be maintained in the future). This may lead to a repeat of the decision-making history that seems correct at the moment, but is shocking in retrospect. This will bring long-term instability risks to the investment market.

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In addition, the Bank of Japan has not backed down from its original action of shrinking the balance sheet. Both the size of the balance sheet and the proportion of GDP have dropped back to the level of 2020; if the sharp depreciation of the yen since 2012 was driven by the BOJ's crazy QE money printing, then now that the BOJ has pushed the scale of the balance sheet back to the level of the spring of 2020, the yen exchange rate is still far away. It is lower than that of the past year (the exchange rate of the U.S. dollar against the yen is about 107 in the spring of 2020). In addition, the BOJ has turned hawkish, and the yen exchange rate has room for appreciation. If so, based on past experience, the price risk of long-term investment in Japanese stocks will increase. Investors, whether they are just starting to invest now or have already made profits in their investment accounts before, must be cautious and cautious next time.

(The author is a senior strategic analyst at the Financial Management Operations Department of SinoPac Securities)

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