According to Yahoo News, traders are now considering the Bank of Japan's (BOJ) December policy meeting as a significant event, as comments from Governor Kazuo Ueda and Deputy Governor Ryozo Himino have impacted wagers in the rates and currency markets. Overnight-indexed swaps on Thursday indicated a nearly 45% chance that the BOJ would end its negative interest rate policy this month, with Himino's remarks on Wednesday being a key driver of the shift. Just two days prior, the risk was estimated at 3.5%.
Ueda's comments in parliament added upward pressure on bond yields and the yen, while Himino presented a hypothesis for what might happen if the central bank ended the world's last negative interest rate regime. Ueda informed lawmakers that managing monetary policy would become more challenging from the year-end and throughout the next year. Japan's benchmark 10-year government bond yield rose 10.5 basis points to 0.75% on Thursday, marking the largest increase since December 2022. The yen strengthened by approximately 0.5% against the dollar.
Daiwa Securities Co. strategists Ryoma Kawahara and Kazuya Sato noted that Himino's speech was seen as relatively hawkish, making the BOJ's Dec. 18-19 meeting a crucial event. Shoki Omori, a strategist at Mizuho Securities Co., highlighted the selling of bonds and futures, as well as the boosting of swap rates. Omori stated that Himino's comments led investors to begin pricing in the central bank's exit from ultra-loose monetary policy in January, rather than the previously anticipated April.
Adding to market tension, Jiji reported that Ueda had arrived at Prime Minister Fumio Kishida's office in Tokyo. The yen rose against all of its Group-of-10 peers, nearing an almost three-month high of 146.23 against the dollar earlier in the week. Mingze Wu, a currency trader at Stonex Financial Pte, said that the focus is now on the BOJ, with FX traders appearing eager to buy the yen based on the risks of a BOJ move in December.
