On March 19, the Bank of Japan officially announced the cancellation of the Yield Curve Control (YCC) policy, raising the benchmark interest rate from -0.1% to 0-0.1%. This is the first rate hike by the Bank of Japan since 2007. In the medium to long term, Zhang Shiqi, the head of wealth strategy and analysis at Bank of China Hong Kong (02388) Personal Digital Financial Products Division, believes that the narrowing interest rate spread will continue to support the overall upward trend of the yen, expecting the yen to appreciate orderly. However, as the Bank of Japan has just started to change its monetary policy and the local economy has been accustomed to years of negative interest rate environment, it is believed that the Bank of Japan will still need some time to assess the impact of moving away from negative interest rates on the economy. Therefore, it is expected that the policy will not change too quickly to cause the yen to surge significantly. Zhang Shiqi believes that the change in the Bank of Japan's monetary policy signifies confidence that Japan can overcome deflation. After the interest rate announcement, the yen fell instead of rising, with the USD/JPY briefly breaking through 150 levels. Zhang Shiqi said this is because Bank of Japan Governor Haruhiko Kuroda had earlier expressed concern about a virtuous cycle of wages and inflation to measure achieving stable prices, and with the results of last week's "shunto" showing a 5.28% average wage increase, the largest in 33 years, the market has already had some expectations for a rate hike by the Bank of Japan. The short-term movement of the yen still needs to observe the tone of the Federal Reserve's interest rate decision on Thursday as well as the updated dot plot. If the Federal Reserve signals a delay in rate cuts or a narrowing of the reduction range, the USD/JPY may have a chance to test the November 2021 high of 152 levels in the short term. As for the impact on Japanese stocks, a low yen level favors Japanese companies with overseas income, as historically the performance of Japanese stocks has been negatively correlated with the yen. However, given the current substantially low effective exchange rate in Japan, it is expected that the impact of this change in monetary policy on Japanese stocks will be limited amidst an orderly appreciation of the yen. On the contrary, with rising Japanese wages, there is potential to boost local consumption and support the local economy. Therefore, it is expected that the fundamental factors of Japanese corporate earnings growth and corporate governance reforms will support the medium to long-term performance of Japanese stocks.