Bank of Japan Governor Kazuo Ueda has been hospitalised and will miss the two-day monetary policy meeting on 15–16 June, the central bank said. Deputy Governor Ryozo Himino will chair the meeting, while Deputy Shinichi Uchida will deliver the afternoon press conference after the decision.
The BoJ gave no further details on the governor’s condition, but said he is likely to remain in hospital for two weeks. The central bank is expected to raise rates at the June meeting by 25 basis points, taking the benchmark interest rate to 1%, the highest level in more than three decades.
Market Uncertainty and Policy Risks
The unexpected hospitalization of Governor Ueda introduces significant uncertainty just days before a pivotal policy meeting. While the market has largely priced in a 25 basis point hike, the absence of the policy’s main architect makes this outcome less certain. We believe this situation creates a prime environment for volatility in the Japanese yen and government bonds.
Recent data strongly supports a rate increase, with Japan’s latest core CPI reading for May coming in at 2.7%, remaining above the 2% target for over a year. This follows final Shunto wage negotiation results showing an average increase of 4.1%, the highest since 1993, which supports the case for tighter policy. Deputy Governor Himino may feel compelled to act to show policy continuity and maintain credibility.
Market Positioning and Potential Reactions
We are advising traders to position for a sharp move in the yen, regardless of the direction. The spike in one-week USD/JPY implied volatility to 12.5% from 8.9% over the past 48 hours suggests options are pricing in a much larger-than-usual swing. Buying straddles or strangles allows us to profit from this expected turbulence around the June 16th announcement.
A delay in the rate hike is now a distinct possibility, as a temporary leadership team may prefer to wait for Ueda’s return before making such a historic move. Historically, abrupt leadership changes at central banks can lead to a more cautious, status-quo approach in the short term. This dovish surprise would likely cause a sharp sell-off in the yen, potentially pushing USD/JPY back towards the 160 level.
We are also looking at options on 10-year JGB futures, as yields will react sharply to the decision. If the Bank of Japan delays the hike, yields could drop back towards the 0.8% level seen last month. Conversely, a hike could push them firmly above the current 1.05% mark, testing multi-decade highs.
