MARKET expectations of a Bank of Japan (BOJ) interest rate hike this month sank after a local media report cast doubt on an increase, weighing on the yen.
Overnight indexed swaps on Thursday (Dec 5) were pricing in a 40 per cent chance of a rate hike at the central bank’s Dec 18 to 19 meeting, falling sharply from 66 per cent on Nov 29. The yen remains weaker than the key 150 per US dollar level, even after recouping some losses following a decline of as much as 1.1 per cent on Wednesday.
A Jiji Press report on Wednesday 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, in a note, referring to the Jiji report.
With the US 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 US 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, in a note. BLOOMBERG
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