Just when the market generally expected a rise in Japanese interest rates, on June 10 local time, the Bank of Japan suddenly issued a statement indicating that Governor Yoshimura had been hospitalized due to illness and would therefore be absent from the monetary policy meeting in June.
According to Reuters and Kyodo News, this is the first time in over 19 years that the Bank of Japan’s governor has missed a monetary policy meeting since the current decision-making mechanism was adopted in 1998.
Yasuo Uchida, Governor of the Bank of Japan: Photo information from Kyodo News
On June 10 local time, the Bank of Japan stated in a statement that Yoshida, aged 74, will be hospitalized for about two weeks to treat his liver cyst infection and will therefore miss the monetary policy meetings scheduled for June 15 and 16.
The statement indicates that Ueda will submit his opinions in writing, but will not participate in the voting process. While hospitalized, Ueda will work remotely and will attend the monetary policy meetings on July 30th and 31st.
It is reported that the meetings on the 15th and 16th will be chaired by Vice President Kiyonari. A press conference after the meetings will be held by Vice President Makoto Ueda.
Japanese investment bank Nomura's interest rate strategist, Masato Iwazaki, stated that Hitachi's hospitalization is unlikely to affect decisions next week, but this will complicate the Bank of Japan's communication regarding its next steps. 'Due to Hitachi's absence, the Bank of Japan may decide not to issue clear signals regarding future interest rate paths. It is uncertain how long it will take for Hitachi to fully recover, and whether the Bank of Japan will raise interest rates again this year becomes even more uncertain.'
There is a general market expectation that, in order to address the inflationary pressures caused by the war in Iran, the Bank of Japan will raise interest rates to nearly the highest level in almost 30 years next week.
According to a report by Kyodo News on the 9th, it is reported that at the monetary policy meetings held on the 15th and 16th, the Bank of Japan will decide to raise the policy rate from the current around 0.75% to around 1.0%. The situation in the Middle East remains unclear, and the Bank of Japan is paying more attention to the risk that soaring oil prices could lead to inflation levels exceeding expectations.
According to reports, if a rate hike is decided, this would be the first rate hike in half a year since the December 2025 meeting.
According to a Japanese economic news report, market forecasts suggest that after the Bank of Japan decides to raise interest rates at its monetary policy meeting in June, it is very likely to maintain a rate-hiking schedule every six months.
A Reuters survey of economists previously indicated that the Bank of Japan will raise interest rates in June, and again in the fourth quarter. By the end of the year, interest rates will reach 1.25%. This is because, compared to economic downturns, the Bank of Japan is more wary of inflation risks.
Takeda Jun, Chief Economist at Mitsui & Co. Research Institute, pointed out that Japan's potential inflation is approaching 2%, and the output gap indicates a supply shortage. Unless loose monetary policies are tightened, inflation is likely to accelerate.
Ueda has always been considered a "moderate" policy maker. However, in his speech on June 3, he stated that even in the event of uncertain circumstances in the Middle East, it is necessary to discuss the issue of interest rate hikes seriously.
He pointed out that if interest rate hikes are delayed, there may be a situation where forced increases in interest rates are necessary in the future. “This could pose a significant burden not only on the economy but also on the market and the financial system.”
At the monetary policy meeting in April, three of the nine members of the Bank of Japan's board of directors voted in favor of raising the short-term policy rate from 0.75% to 1%. Subsequently, two other members—Junzo Kojima and Ichiro Masu—also called for an increase in the rate soon.
However, Japanese Prime Minister Yoshihide Suga is reserved on the interest rate hike plan proposed by the Bank of Japan.
Some analysts believe that Yoshida's health issues may provide an opportunity for Goto to influence the Bank of Japan's policies. If Yoshida retires, Goto could also influence the central bank's policies by choosing his successor.
