Kazuo Ueda’s speech turns cautious, sharply lowering expectations for Bank of Japan’s April rate hike.

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Bank of Japan Governor Kazuo Ueda’s language has become more cautious, causing market bets on the BOJ raising rates this month to drop sharply.

On Monday in Tokyo, Ueda delivered a speech emphasizing the rising uncertainty in the Middle East, saying the Bank of Japan will closely monitor relevant developments and their potential impact on economic activity, prices, and financial conditions. Since Ueda himself is attending a series of global policy meetings in Washington, the speech was read by Deputy Governor Ryozo Himino on his behalf.

After the speech, the overnight swap market showed that the probability of traders betting on a rate hike by the Bank of Japan on April 28 plummeted from 45% on Monday morning to about 33%, whereas last Friday, this probability had approached 60%. The rapid market pullback reflects the direct impact that heightened geopolitical risks have on monetary policy prospects. After the news, the USD/JPY exchange rate rose 0.24% to 159.68 yen.

Change in Language Signals Caution

The core change in Ueda's latest speech lies in his noticeably different expression compared to before. In many previous public statements, he repeatedly stressed that if the economic outlook unfolds as expected, the BOJ will proceed with rate hikes, with hardly any mention of future uncertainty in his wording.

In this speech, however, while reiterating the unchanged policy stance from the March meeting, Ueda put emphasis on "closely monitoring the Middle East situation," adopting noticeably more cautious language. Bloomberg thinks this subtle adjustment in wording may reflect rising anxiety within the Bank of Japan—the failure of the US and Iran to reach an agreement last weekend has increased the risk of prolonged conflicts.

Ueda further clarified in his speech how Middle East developments affect Japan’s economy. He said rising tensions in the Middle East have already triggered unstable fluctuations in global financial markets and a sharp increase in international oil prices, which must be closely watched going forward.

Ueda also pointed out that for a resource-importing nation like Japan, higher oil prices will put downward pressure on the economy by worsening trade conditions; if supply chains are affected, it could also disrupt production activity. These comments imply that external shocks have become an important factor behind the BOJ’s caution in raising rates.

It is worth noting that before the April 28 rate decision, there are no other major public speeches scheduled by BOJ policy board members this month. Ueda’s speech is one of his few remaining public remarks before the meeting. Because such occasions are usually brief, the market is highly sensitive to every word of his statements.

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