Bank of Japan rate hike bets retreat as traders count down to key meeting

Overnight indexed swaps on Thursday (December 5) were pricing in a 40% chance of a rate hike at the central bank’s December 18-19 meeting, falling sharply from 66% on November 29. The yen remains weaker than the key 150 per dollar level, even after recouping some losses following a decline of as much as 1.1% on Wednesday.

A Jiji Press report on Wednesday (December 4) said that inside the BOJ the view is growing that a premature rate increase should be avoided unless there’s a big risk of consumer prices rising on factors such as a weakening yen. That was in contrast to BOJ Governor Kazuo Ueda’s remarks in an interview with Nikkei that rate hikes were “nearing” as inflation and economic trends develop in line with the central bank’s forecasts.

“If the information was released with intention by the BOJ, it may be trying to prevent the misunderstanding that it has already decided to raise interest rates at the December meeting,” wrote Yusuke Matsuo, a senior market economist at Mizuho Securities Co., in a note, referring to the Jiji report.

With the Federal Reserve’s policy outlook also uncertain, the wide rate differentials between Japan and other economies may keep the yen weak. Investors will be paying close attention to BOJ board member Toyoaki Nakamura’s speech and press conference today for any further hints on monetary policy and the dollar-yen’s path from here.

“The speech by the dovish board member is today, so expectations of an interest rate hike by the BOJ are unlikely to rise,” wrote Yujiro Goto, head of foreign-exchange strategy at Nomura Securities Co., in a note.