Will the Takaichi administration’s tolerance for yen depreciation change? Bank of Japan rate-hike stance crucial to stability in the yen and bond markets: Nomura Securities’ Goto Yujiro (後藤祐二朗)

The BOJ's stance on rate hikes is considered relevant to the Takaichi Sanae administration's (高市早苗) tolerance for yen depreciation and the stability of the bond market. The analysis is based on market developments, including the revisions to the Basic Policies for Economic and Fiscal Management and Reform in July.

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The story

The Takaichi administration's stance on monetary and fiscal policy has been viewed as "more accommodative than expected," and the market is focused on how its tolerance for rising bond yields and yen depreciation will change. Efforts to promote investment in domestic assets and place greater emphasis on bond-market stability are also gaining momentum.

USD/JPY has risen to just short of ¥164 per US dollar. Easing tensions in the Middle East, oil price trends, the US and Japanese monetary policy decisions in July, and the government's stance on intervention have been cited as factors that could affect the market in the short term. Whether tolerance for yen depreciation will decline is a key point of focus.

As part of efforts to promote domestic investment, a policy has been presented to support increased investment in domestic financial assets by pension funds, led by GPIF. Finance Minister Katayama (片山) and Prime Minister Takaichi (高市) have expressed their intention to consider and promote measures to encourage individual investors to invest in domestic assets.

At a glance

Tolerance for yen depreciationThe market is focusing on the possibility that the Takaichi administration's tolerance for yen depreciation may change.

Basic PolicyThe government's consideration for the market was suggested by revisions to the wording of the Basic Policies for Economic and Fiscal Management and Reform in the Cabinet decision of 21 July.

GPIF/PensionsThe Minister of Finance and the Prime Minister indicated a policy of promoting increased investment in domestic assets, including pension funds.

Japanese government bonds for individual investorsThe Basic Policies for Economic and Fiscal Management and Reform referred to consideration of ways to make Japanese government bonds for individual investors more attractive and eligible for NISA.

BOJ stanceThe view was expressed that the BOJ's stance on rate hikes will affect the stability of the yen and bond markets, putting the September meeting in focus.

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