For the first time in history! The Governor of the Bank of Japan “misses” the interest rate decision due to illness, the market expects a rate hike, but Sanae Takaichi sees an “opportunity”?

For the first time in history! The Governor of the Bank of Japan “misses” the interest rate decision due to illness, the market expects a rate hike, but Sanae Takaichi sees an “opportunity”?

Local time on June 10, the Bank of Japan (BOJ) officially announced that its 74-year-old governor Kazuo Ueda was urgently hospitalized due to an infection in his liver cyst and is expected to stay about two weeks, making him unable to attend the monetary policy meeting on June 15-16. This is the first absence of the governor from a regular policy meeting since the current policy decision mechanism was established in 1998.

Kazuo Ueda will not participate in next week's vote, but will submit his policy stance in writing. The Bank of Japan said he is expected to attend the next policy meeting on July 30-31.

At the same time, the BOJ announced that Deputy Governor Shinichi Himino will preside over the upcoming policy meeting, while the other Deputy Governor, Shinichi Uchida, will handle the post-meeting press conference. Notably, Shinichi Uchida had just recovered after being hospitalized for leukemia treatment; the top management of the BOJ facing consecutive health issues is quite rare.

Meanwhile, Japanese Prime Minister Sanae Takaichi has long advocated easy monetary policy. Analysts point out that if Kazuo Ueda's health continues to deteriorate, it may give her an opportunity to influence the policy direction of the BOJ.

The prospect for a rate hike is settled, markets have long "bet"

Despite the governor's absence, the market's judgment for this meeting remains unchanged—a rate hike.

According to Bloomberg reports, overnight swap markets have priced in an 88% probability of a rate hike by the BOJ on June 16. Three logical factors support this expectation:

First, inflationary pressures persist. Middle East conflicts have driven up energy and commodity prices, Japan's inflation has surpassed the BOJ's 2% target, and real interest rates remain low.

Second, the yen remains under pressure. The yen has been hovering around 160 recently, a level that has triggered intervention by Japanese authorities many times before—according to Bloomberg data, since late April, Japan has spent about $74 billion in FX market interventions.

Third, Kazuo Ueda himself gave a clear signal in his last public speech before hospitalization. He stated that if the risks of prices rising faster than expected outweigh the negative impact of geopolitical conflict on the economy, "the BOJ will need to consider raising rates." The directness of the language was interpreted as a strong policy preview by the market.

At the previous meeting in April, three of the nine committee members voted to raise the short-term policy rate from 0.75% to 1%. Afterwards, members Junko Koeda and Kazuyuki Masu also publicly expressed support for near-term rate hikes, meaning that if a rate hike is pushed forward, Kazuo Ueda could have majority support in the committee.

The real trouble is post-meeting communication, not the governor's absence

The rate hike itself may not be affected, but Kazuo Ueda’s absence makes another issue tricky—how the BOJ communicates the future path of interest rates to the market.

Nomura Securities’ executive rate strategist Mari Iwashita directly pointed out the problem: “Due to Ueda’s absence, the BOJ may decide not to give a clear signal about the future rate path. Given there is uncertainty about when the governor will fully recover, whether another rate hike will happen this year has become more unclear.”

This is no small matter. Central bank’s policy communication essentially manages market expectations. The governor is the core of this mechanism—his wording, tone, and a single sentence at a press conference will be interpreted multiple times by the market. Now with the governor absent and the deputy presiding, whether markets can read equally weighted policy signals is a question itself.

The BOJ is currently at a key turning point: shifting from ultra-easy policy over the past decades to a genuine tightening cycle against inflation. This transformation requires clear and consistent policy communication to stabilize expectations, but Ueda's absence has introduced uncertainty at this node.

Sanae Takaichi’s “window period”

Kazuo Ueda’s health condition brings out another clue.

Japanese Prime Minister Sanae Takaichi has long been a strong proponent of easy fiscal and monetary policy and has previously expressed reservations about the BOJ's rate hike plans on multiple occasions. According to Reuters and other media quoting analysts, Ueda’s health problems may provide Takaichi with an opportunity to influence the BOJ’s policy direction—especially concerning the governor’s succession. If Ueda eventually opts to resign, his successor would be nominated by the Prime Minister.

Norihiro Yamaguchi, a senior economist at Oxford Economics in Tokyo, expressed caution, stating that Ueda’s resignation “currently looks unlikely.” But he also admitted: “That being said, if Takaichi needs to appoint a new governor, she is indeed more likely to select someone with a more dovish stance.”

Currently, Kazuo Ueda is expected to receive about two weeks of treatment in the hospital and handle work remotely, planning to attend the next policy meeting on July 30-31. In other words, his “absence” is still temporary for now, and the political variable has not truly opened up yet.

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