Bank of Japan Governor Kazuo Ueda delivered a public speech on the 3rd, sending a clear signal of monetary policy tightening (hawkishness). Economists and market analysts widely interpret these remarks as laying the groundwork for the Bank of Japan to announce a 25-basis-point interest rate hike at its monetary policy meeting scheduled for June 15-16. The financial markets reacted swiftly to these comments, with the yen strengthening against the US dollar from around 159.90 yen per dollar to 159.30 yen at one point.

In his speech, Ueda explicitly stated that, despite heightened global economic uncertainty due to the situation in the Middle East, for the Bank of Japan, addressing the risk of rising inflation is more urgent than guarding against the risk of slowing economic growth. He emphasized that the recent sharp rise in Japan's long-term government bond yields essentially reflects a strengthening of market inflation expectations. This further highlights the importance and urgency of keeping the Consumer Price Index (CPI) within a reasonable range.

Regarding the market-sensitive policy of purchasing Japanese Government Bonds (JGBs), Ueda's stance was relatively cautious. Analysis suggests that while he did not provide a very clear roadmap, he appears to have left policy room for the Bank of Japan to slow down, or even temporarily halt, the pace of reducing its bond purchases at the upcoming June monetary policy meeting. At that time, the Bank of Japan will formally release its mid-term assessment report on government bond purchases.

Market research institutions analyze that Ueda's speech clarified the key direction of the Bank of Japan's future policy reaction function. This indicates the central bank is shifting from the cautious, wait-and-see stance exhibited at its April meeting back towards the policy position focused on inflation management established at its March meeting. Current baseline forecasts suggest the Bank of Japan is highly likely to implement 25-basis-point rate hikes at its meetings in June and December of this year, aiming to raise the target interest rate to 1.25% by the end of 2026.