The November 5th US presidential election is fast approaching.

 

Despite BOJ Governor Kazuo Ueda restored the bank’s readiness to raise interest rates at the October 31st Monetary Policy Meeting (MPM), and the October US employment report released on November 1st showed unexpected weakness (partly due to the effects of hurricanes and Boeing strikes), the yen continues to weaken against the dollar.

 

 

Although I maintain Trump’s victory as my base scenario, discussing post-election outlooks would be premature at this point.

 

Instead, I’d like to analyze the recent BOJ MPM.

 

I plan to contribute a new article after the US presidential election results are finalized on November 7th.

 

 

On October 31st, while the BOJ maintained its policy rates, Governor Kazuo Ueda delivered a crucial message during the press conference, explicitly stating that “the expression ‘having enough time’ will no longer be used.”

 

Let me provide some context to better understand this statement.

 

After the BOJ’s rate hike on July 31st, concerns about the US economy intensified, leading to rapid yen appreciation and stock market decline in early August.

 

In response, BOJ Deputy Governor Shinichi Uchida stated in his August 7th speech that “the Bank will not raise its policy interest rate when financial and capital markets are unstable,” and later added in the press conference that “we have in mind a path with having enough time.”

 

This led to market stability as expectations of immediate additional rate hikes diminished.

 

The expression became a key phrase when Governor Ueda also mentioned during the September 20th post-meeting press conference that “regarding policy decisions… we have enough time.”

 

 

Governor Ueda’s latest press conference explanation can be summarized as follows:

  • The expression was initially used from August due to significant risks from weak US employment data and volatile markets, requiring careful consideration

 

  • Markets have gradually stabilized since then, with US economic indicators showing strength over the past month

 

  • As risk levels have decreased, the expression about having enough time is no longer necessary

 

Going forward, in Governor Ueda’s words, “decisions will be based on information and data available at each meeting, and as the likelihood of our outlook increases, policy adjustments (i.e., rate hikes) will be made accordingly.”

 

Moreover, Governor Ueda repeatedly emphasized that “compared to the past, exchange rate fluctuations now have a more significant impact on prices.”

 

It’s noteworthy that the USD/JPY level before the October 31st meeting (around 153 yen) was almost identical to the level just before the July 31st rate hike decision.

 

Former Governor Haruhiko Kuroda had declared that monetary policy would not be changed based on exchange rates.

 

This stance partly stemmed from his experience as Vice Minister of Finance (1999-2003), where he clearly distinguished between monetary policy (BOJ) and exchange rate policy (Ministry of Finance).

 

More importantly, exchange rate impact on inflation was minimal at that time since inflation itself wasn’t rising.

 

However, with inflation now exceeding 2% and exchange rates having a greater influence on prices, they can no longer be ignored.

 

Given the continued strength of the US economy and ongoing yen depreciation, there is a significant possibility that the BOJ will implement additional rate hikes at its next meeting on December 19th.