Ueda Kazuo will be absent from the key policy meeting due to hospitalization, which is expected to have no effect on the Bank of Japan's interest rate hike process.

According to information released by the Bank of Japan, Bank of Japan Governor Haruhiko Kuroda is expected to miss the upcoming monetary policy meeting next week due to hospitalization for treatment. The Bank of Japan said in a statement on Wednesday, "The Governor is currently hospitalized for treatment of an infected liver cyst. The expected duration of hospitalization is about two weeks." The Bank of Japan added that during the policy meeting on June 15-16, Deputy Governor Masayoshi Amamiya would serve as acting chairman, while Deputy Governor Shinichi Uchida would lead the post-meeting press conference. According to information from the American Liver Foundation, a liver cyst is an abnormal cystic structure on the liver that usually does not cause symptoms and does not require treatment. However, infected liver cysts typically require long-term hospitalization and, in severe cases, may even be life-threatening. Since becoming the Governor of the Bank of Japan in April 2023, 74-year-old Haruhiko Kuroda is missing a monetary policy meeting for the first time and is hospitalized for the first time for health reasons. According to the Bank of Japan's media relations department, Kuroda will express his views in writing during the June meeting, but will not participate in the vote. The Bank of Japan stated that it is expected that Kuroda will be able to attend the policy meeting in July after being discharged from the hospital. It is widely expected that the Bank of Japan will raise interest rates by 25 basis points at the meeting next week, raising the policy rate to its highest level since 1995. With several policy committee members expressing or implying the need for further rate hikes since the last meeting, Kuroda's absence is unlikely to change market expectations for a rate hike by the Bank of Japan. Chief economist at Norinchukin Research Institute, Takeshi Minami, said, "Fundamentally, this is a health issue, so I don't think it will impact the implementation of monetary policy. The policy decision itself is likely to have already been largely determined." He added, "Deputy Governor Shinichi Uchida has extensive experience as a central bank official, so the market focus will shift to when the next policy action may come and what signals he may release." It is almost certain that the Bank of Japan will raise interest rates next week, as predicted by observers of the Bank of Japan, who believe that the central bank will raise the benchmark interest rate twice this year - with the first increase expected to occur next week - as they increasingly believe that the situation in the Middle East may lead to sustained high inflation. According to a survey of 51 economists, about 49 expect the Bank of Japan Policy Board to raise the key rate by 25 basis points to 1% at the two-day meeting ending on June 16. The poll also showed that respondents expect the rate to rise to 1.25% by the end of the year, indicating that there will be another rate hike during the year. Following signals from Bank of Japan Governor Haruhiko Kuroda last week, expectations of a rate hike by the Bank of Japan have increased. Kuroda stated that authorities will focus on addressing inflation issues, as price risks seem more pressing than economic downside risks. He said, "Based on the data and information currently available, price risks overall appear to be greater and may materialize faster." According to 94% of survey respondents, Kuroda's remarks last week made a rate hike by the Bank of Japan in June either a certainty or a highly probable event. Moreover, the percentage of respondents who believe that the Bank of Japan faces a "lagging behind the situation" risk in dealing with inflation has risen to 60%, the highest level since the question was first raised in a survey conducted in July last year. Hirohiko Sano, chief bond strategist at Mizuho Securities, Tokyo, said, "If the Bank of Japan does not raise interest rates, concerns about its delayed action could intensify, leading to a sharp rise in long-term yields." In addition to Kuroda's statement, wage data released last Friday also supported a rate hike by the Bank of Japan. The Ministry of Health, Labor, and Welfare reported last Friday that in April, inflation-adjusted wages rose by 1.9% year-on-year, an increase from the revised 1.4% in the previous month and higher than the 1.7% forecast by economists. This marked the longest wage growth streak since the end of 2021. Nominal wages increased by 3.5%, exceeding the market consensus of 3.1%. Base wages grew by 3.4%. Another similar indicator, monitored by Bank of Japan officials to avoid sampling issues, showed a 2.6% increase in wages for full-time employees. These indicators all point to strong wage growth. In theory, stable wage growth helps strengthen domestic demand in Japan, providing support for further normalization of monetary policy. The chief market economist at Nomura Securities stated, "Income conditions are improving, thanks to this year's spring wage negotiations and their results. Unless the situation in the Middle East significantly deteriorates again, a rate hike in June is almost certain." The situation in the Middle East is currently at an impasse. According to the latest reports, on June 10, U.S. President Trump posted on social media, stating that Iran only talks but does not take any real action, and that Iran has "taken too long to negotiate a deal that would be very favorable to them, and now they must pay the price." Reports suggest that Trump said he would soon order new strikes against Iran's power plants and bridges. Earlier, on June 9, media reports cited U.S. officials and several diplomats as saying that there had been "significant progress" in U.S.-Iran negotiations through Pakistani mediation, with changes in the U.S. position on how to handle Iran's enriched uranium - no longer requiring Iran to ship its highly enriched uranium stocks out of the country, but to cooperate with the International Atomic Energy Agency for dilution. Reports suggest that the possibility of an agreement between the U.S. and Iran is much greater than previously expected, with the two sides primarily bargaining around the four demands put forward by the U.S. However, despite claims by U.S. officials of "significant progress" in negotiations with Iran, there are still significant differences between the two sides. Iran has demanded the lifting of sanctions, the release of frozen Iranian assets overseas before reaching a final agreement, but the U.S. is unlikely to agree. Moreover, the latest dynamics of U.S.-Iran confrontation may pose new obstacles to reaching an agreement. With a rate hike by the Bank of Japan next week almost certain, market attention will focus on the signals released by the Bank of Japan regarding the path of rate hikes. The chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, Naomi Kurosu, previously stated, "The focus of this meeting will be on how far Governor Kuroda will go in discussing the possibility and necessity of accelerating the pace of rate hikes - in other words, whether he will hint at himself transitioning into an 'inflation fighter'." However, given the latest news that Kuroda is absent from next week's policy meeting due to illness, his views expressed in written form will be closely watched. However, political factors may add uncertainty to the Bank of Japan tightening policy. Prime Minister Sanae Takichi is believed to complicate efforts by the Bank of Japan to normalize monetary policy, as she has publicly expressed support for monetary easing in the past. In the survey of economists mentioned above, about 75% of respondents stated that if the Bank of Japan skips the rate hike this month, it will deepen the market's view that the prime minister has set a high threshold for a rate hike. Analysts point out that ongoing inflation pressure, yen depreciation exacerbating inflation input, and the overall global environment of tightening monetary policy provide logical support for the Bank of Japan to raise interest rates next week. However, the Bank of Japan still has multiple concerns about the path of rate hikes. First, the foundation of Japan's domestic economic recovery is very fragile, and a rate hike could further suppress weak domestic demand and business investment; second, Japan's government debt is massive, and a rate hike would significantly increase fiscal interest payment pressures, endangering debt stability; third, financial institutions have heavy holdings of government bonds under long-term low interest rates, and a rate hike could trigger asset valuation losses, impacting the soundness of the financial system, while also balancing the pace of monetary policy with expansionary fiscal policy.