MUFG’s Michael Wan reports that Bank of Japan (BoJ) Board Member Junko Koeda has strengthened the case for further policy tightening. Koeda emphasized upside price risks, still-accommodative financial conditions and judged the neutral rate to be well above 1%. MUFG sees her remarks as consistent with continued policy normalization, with swaps implying a high probability of a move by December.

Koeda signals ongoing normalization bias

“In Japan, Bank of Japan Board Member Junko Koeda reinforced the case for further tightening, with a more explicit warning against excessive caution than in her previous speech.”

“Her latest remarks placed greater emphasis on upside price risks and still-accommodative financial conditions, while she judged the neutral rate to be considerably above 1%.”

“In our view, Koeda’s comments reinforce the case for continued policy normalisation, while stopping short of signalling the timing of the next move.”

“Her emphasis on upside price risks and still-accommodative financial conditions is consistent with further rate increases in the coming months, with the pace dependent on incoming economic and inflation data.”

“Overnight swaps imply only around a 4% probability of a move in October but an 82% probability by December.”