Japanese shares trim losses, yen falls as Ueda cools BOJ bets

Investing.com-- Japaneses stock indexes trimmed a bulk of their early losses on Tuesday, while the yen fell from one-month highs after Bank of Japan Governor Kazuo Ueda struck a less positive tone on the economy.

Speaking in the parliament, Ueda said that while the Japanese economy was recovering, it was also exhibiting some signs of weakness, specifically in consumption. His comments on the economy were less optimistic than those seen in the BOJ’s quarterly report in January. 

Ueda’s comments saw traders scaling back some bets that a policy shift by the BOJ was imminent. The Nikkei 225 and TOPIX indexes recouped a bulk of their initial losses, trading down 0.4% and 1%, respectively, while the Japanese yen fell 0.3% from an over one-month high. 

Ueda offered few cues on when the BOJ planned to end its negative interest rates and yield curve control policies. But a slew of media reports this week suggested that the central bank could signal, or even enact an end to those policies by as soon as next week.

A Reuters report suggested that BOJ policymakers were considering a policy shift in either a meeting next week or at the end of April.

Recent data prints also presented more impetus for the BOJ to consider tightening policy soon. Consumer price index and producer price index readings for February pointed to stickiness in inflation, while a revised reading for fourth quarter GDP showed that Japan dodged a technical recession. 

Ongoing labor shortages in the country are also expected to attract bumper wage hikes in 2024, with higher wages being among the key considerations for the BOJ in tightening policy. 

Wage talks between major Japanese employers and unions are set to wrap up on Wednesday, with initial reports pointing to large increases.

Higher wages are also likely to underpin inflation in the coming months, pressuring the BOJ into tightening policy.