Core Viewpoint - The Japanese government is increasing its sensitivity to the yen's depreciation and rising long-term interest rates, indicating a potential for verbal intervention in the currency market to combat yen weakness [1] Group 1: Government Actions and Statements - The Chief Cabinet Secretary, Hirokazu Matsuno, emphasized the government's close monitoring of market conditions, particularly the fluctuations in long-term interest rates [1] - Matsuno's remarks are interpreted as a warning to the foreign exchange market regarding the potential instability caused by the recent depreciation of the yen [1] Group 2: Market Conditions - The yen continues to face pressure due to persistent yield differentials between Japan and other major economies, despite growing expectations that the Bank of Japan will gradually normalize its monetary policy [1]

Group 1 - The recent depreciation of the yen is increasing the likelihood of a rate hike by the Bank of Japan (BOJ) next month, with a high probability of a December rate increase if no major negative news arises [1][4] - The yen has depreciated approximately 5% over the past three months, reaching a 10-month low against the dollar, which has raised concerns about rising import costs and inflationary pressures [4][5] - The Japanese government has approved a comprehensive economic plan worth 21.3 trillion yen to support the economy and consumers affected by inflation, marking the largest stimulus measure since the pandemic [4] Group 2 - The BOJ's core inflation rate accelerated to 3% last month, remaining above the 2% target for three and a half years, prompting the central bank to closely monitor the yen's impact on potential inflation [5] - Market participants are speculating on the timing of the BOJ's rate hike, with a 40% probability for December and a 90% probability for January, as recent surveys indicate December as the most likely time for action [5][6] - The BOJ policy committee appears to be increasingly supportive of a rate hike in the coming months, with recent comments from committee members indicating a shift towards normalizing monetary policy [6]

Core Viewpoint - The Bank of Japan Governor Kazuo Ueda indicated that the weak yen is driving up import prices, contributing to the rise in the Consumer Price Index (CPI) [1] Group 1 - The Bank of Japan is closely monitoring the impact of foreign exchange fluctuations on prices [1]

Core Viewpoint - The Japanese Finance Minister, Shunichi Suzuki, expressed the difficulty of balancing inflation, bond yields, and the weak yen during a parliamentary committee meeting on November 20 [1] Group 1: Inflation and Economic Factors - The Finance Minister highlighted the challenges in finding an appropriate balance among inflation, bond yields, and the depreciation of the yen [1] - He noted that bond yields and exchange rates are determined by the market based on various factors [1] Group 2: Market Commentary - The Finance Minister stated that he would avoid making direct comments on market trends to prevent any unintended consequences [1]

Core Viewpoint - The Bank of Japan (BOJ) maintained its benchmark interest rate at 0.5% for the sixth consecutive time, aligning with market expectations, despite increasing pressure for rate hikes due to a weakening yen and rising inflation concerns [3][7][10]. Economic and Inflation Forecasts - The BOJ revised its GDP growth forecast for the fiscal year 2025 from 0.6% to 0.7%, while maintaining forecasts for 2026 and 2027 at 0.7% and 1.0% respectively [7]. - The core Consumer Price Index (CPI) projections for the fiscal years 2025 to 2027 are set at 2.7%, 1.8%, and 2.0%, respectively, indicating a stable inflation outlook [7]. Internal and External Pressures for Rate Hikes - BOJ policymakers, including Hajime Takata and Naoki Tamura, expressed dissent against the decision to maintain the current rate, advocating for a 25 basis point increase to 0.75% [7][12]. - There is growing concern among BOJ members regarding the low real interest rates and the potential impact of exchange rate fluctuations on inflation and economic stability [7][12]. Market Reactions and Predictions - Following the BOJ's announcement, the USD/JPY exchange rate surged to 153.08, reflecting market reactions to the ongoing uncertainty and potential for future rate hikes [8]. - Analysts predict that the BOJ may raise interest rates again in December 2023 or January 2024, with expectations of increasing borrowing costs to 1% after a pause [12].

Core Viewpoint - The Japanese yen appears weak, influenced by the unexpectedly hawkish signals from the Federal Reserve, highlighting a contrast in policy stances between the Bank of Japan and the Federal Reserve [1] Group 1: Monetary Policy - The Bank of Japan remains cautious regarding interest rate hikes, while the Federal Reserve is also careful about interest rate cuts, creating a stark policy divergence [1] - There is still potential for the Bank of Japan to adjust its policies within the year, indicating that there may be room for policy changes [1]

Core Viewpoint - The uncertainty in Japan's fiscal outlook and weak economic data may lead the Bank of Japan to postpone its next interest rate hike from October to January next year [1] Group 1: Economic Outlook - Marcel Thieliant, head of Asia-Pacific at Capital Economics, indicates that the recent election of Fumio Kishida as the leader of the Liberal Democratic Party and the exit of Komeito from the ruling coalition necessitates Kishida to seek support from other parties [1] - The opposition now has more leverage to push for high-cost measures, such as tax cuts equivalent to 2.8% of GDP [1] - Weak manufacturing profits may limit wage growth next year, while a significant decline in the Bank of Japan's consumption activity index shows that rising food prices are dragging down household spending [1] Group 2: Monetary Policy - Recent comments from Bank of Japan officials suggest that they are not in a hurry to tighten monetary policy and are assessing the overall impact of U.S. tariff measures [1] - The potential delay in interest rate hikes may keep the yen weak for an extended period, which could support the Tokyo Stock Exchange index [1]

Group 1 - The core viewpoint is that Japan must raise interest rates and restore fiscal order to reverse the depreciation of the yen, which has led to increased inflation and pressure on household living standards [1][2] - Taro Kono, a senior ruling party lawmaker, emphasizes the importance of signaling to the market that Japan will move away from negative real interest rates, advocating for gradual interest rate hikes by the Bank of Japan (BOJ) [1] - Despite consumer inflation exceeding 2% for over three years, BOJ Governor Kazuo Ueda has urged caution in further rate hikes due to potential economic impacts from U.S. tariffs [1][2] Group 2 - Critics argue that the slow pace of BOJ interest rate hikes has contributed to yen weakness, increasing import costs and affecting corporate profits and retirees [2] - Kono suggests that the government and BOJ need to establish a new economic framework to replace the "Abenomics" policy, which focused on large-scale monetary and fiscal stimulus to end deflation [2] - Kono advocates for a moderate appreciation of the yen as the best measure to address rising living costs and restore fiscal health under a new consensus [2]

Core Viewpoint - The U.S. aims to prevent further appreciation of the dollar, while Japan seeks to avoid a weak yen that could drive up inflation [1] Group 1 - The U.S. is concerned about the potential negative impacts of a stronger dollar on its economy [1] - Japan is focused on managing the yen's value to control inflationary pressures [1]