Market anxiety rises as BoJ governor prepares for parliamentary speech

Markets are on edge as Bank of Japan (BoJ) Governor Kazuo Ueda gets ready to face a five-hour grilling by Japanese lawmakers on Friday.

His recent hawkish comments already triggered a massive selloff in global stock markets, and now, investors are bracing for more potential surprises. 

Each session lasts two and a half hours, giving lawmakers plenty of time to dig into Ueda’s policies and the BoJ’s recent decisions.

Earlier this month, his hawkish rhetoric sent shockwaves through the financial markets, wiping out as much as $6.4 trillion from global stocks. 

A sharp rise in the yen forced many speculators to abandon their yen-carry trades, leading to the biggest drop in the Nikkei 225 on record.

While markets have clawed back some of those losses, the damage was done, and the upcoming testimony could either calm nerves or add fuel to the fire.

Some economists aren’t expecting Ueda to suddenly become dovish, meaning he might hint at more rate hikes, potentially causing another round of selloffs and further retreat in yen carry positions.

Shinichi Uchida, Ueda’s deputy, has already tried to ease the tension by telling us the BoJ wouldn’t raise interest rates when financial markets are unstable. 

Uchida also mentioned that the BoJ should keep its benchmark rate unchanged “for the time being.” Since then, markets have been relatively calm, but that calm could be shattered depending on how Ueda handles his testimony.

Prime Minister Fumio Kishida, who handpicked Ueda for the BoJ role, is stepping down soon, and his replacement will be decided in the Liberal Democratic Party’s leadership election on September 27. 

Ueda will likely want to stay on the good side of lawmakers to maintain his position and influence. Any misstep during his testimony could shake that trust.

Ueda’s communication skills have been mixed. While he’s generally well-regarded, there have been moments where his words have sparked controversy. 

Back in April, the central bank governor downplayed the rapid weakening of the yen, which didn’t sit well with many. The yen continued to slide, forcing the Japanese government to intervene in the market to stabilize the currency. 

Ueda’s tendency to give long, detailed answers that sometimes contradict each other has also made some at the central bank uneasy.

His academic background might be part of the reason—he’s the first former academic to lead the BoJ, and his habit of considering multiple, sometimes opposing scenarios, doesn’t always translate well to the high-stakes world of central banking.