Market Expectations of BoJ Interest Rate Hike Sink after Local Report
Market Reaction
Market expectations of a Bank of Japan (BOJ) interest rate hike this month have sunk 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% chance of a rate hike at the central bank’s Dec 18 to 19 meeting, falling sharply from 66% 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% on Wednesday.
BOJ’s View on Rate Hike
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. This 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.
Market Analysis
"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.
US Federal Reserve’s Policy Outlook
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.
Conclusion
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.
Frequently Asked Questions
Q: What is the current market expectation of a BoJ interest rate hike?
A: Market expectations of a BoJ interest rate hike have sunk to 40% after a local media report cast doubt on an increase.
Q: What is the current exchange rate of the yen?
A: The yen remains weaker than the key 150 per US dollar level.
Q: What is the US Federal Reserve’s policy outlook?
A: The US Federal Reserve’s policy outlook is also uncertain, which may keep the yen weak.
Q: Who is Yusuke Matsuo and Yujiro Goto?
A: Yusuke Matsuo is a senior market economist at Mizuho Securities, and Yujiro Goto is the head of foreign-exchange strategy at Nomura Securities.
