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Bank of Japan Governor Kazuo Ueda stated that Japan's real interest rates remain 'clearly negative,' maintaining supportive financial conditions that encourage investment. However, he warned that rising government spending could lead to higher market interest rates, creating fiscal crowding-out risks that may hinder private sector borrowing. Ueda emphasized the central bank's commitment to balancing monetary stimulus with fiscal caution, as policymakers navigate post-pandemic economic recovery.
The comments highlight the BoJ's dilemma between sustaining economic growth through ultra-loose monetary policy and mitigating the risks of excessive government debt. Markets will closely watch how the BoJ responds to potential upward pressure on yields, particularly as global central banks shift toward tighter policies. The USD/JPY pair and Japanese government bond yields are likely to face volatility amid these uncertainties.
For traders, the warning signals potential policy divergence between Japan and other major economies. If the BoJ delays rate hikes while the Fed or ECB tightens, the yen could weaken further. Investors should monitor upcoming BoJ policy statements and fiscal stimulus announcements for clues about future monetary adjustments.
