Recently, Ueda Kazuo discussed Japan's Bank of Japan's interest rate hike strategy, emphasizing a point that is often overlooked — Japan's real interest rates are actually at low levels, which directly affects the pace of central bank decisions.

His statement is quite interesting. The current inflation Japan faces is not caused by overheating demand, but rather by negative supply shocks, such as energy prices and global supply chain issues. This type of inflation has limited effectiveness with traditional rate hikes, so the central bank needs to be more cautious. Ueda Kazuo is essentially saying that rate hikes should not be too aggressive and must consider Japan's actual economic situation.

Interestingly, the market had high expectations for a rate increase at the April policy meeting, but Ueda Kazuo chose not to directly respond to these expectations. Instead, he emphasized that the central bank needs to make decisions under the constraint of low real interest rates. This kind of statement usually indicates that the central bank will be more cautious than market expectations.

Speaking of which, Japan's central bank's policy path over the past years has indeed been quite complex. From the ultra-loose policies starting in 2013, to the introduction of negative interest rates and yield curve control in 2016, and finally to a real exit from this framework in March 2024, Japan's central bank has been trying to stimulate the economy for over a decade. But this has also led to the yen's continuous depreciation, especially during 2022-2023 when other global central banks were rapidly raising interest rates, making Japan's policy divergence increasingly apparent.

One last detail worth noting — at that time, USD/JPY rose by 0.15% to 159.40, reflecting the market's interpretation of Ueda Kazuo's comments. If rate hike expectations cool down, the yen usually faces downward pressure. However, in the longer term, Japan's central bank has already begun adjusting its ultra-loose policy, and with rising wages driving inflation, this process is likely to continue. For those paying attention to Japan's economy and yen movements, every statement from Ueda Kazuo is worth close scrutiny.