The Bank of Japan's Governor Kazuo Ueda will hold a press conference next Monday, with markets eagerly awaiting his comments for any hints of a potential rate hike in December.
This will be Ueda's first direct comments on monetary policy since Donald Trump's victory in the U.S. presidential election, and market expectations are high for any indications regarding the timing of the Bank of Japan's next rate move.
Currently, there is still some division in the market as to whether the Bank of Japan will raise rates next month or wait until January of the following year.
Some analysts believe that following the surprise rate hike in July, which caused a significant market disruption in August, Ueda may adopt a more cautious tone in his remarks. However, if the Bank of Japan intends to lay the groundwork for a rate hike at its policy meeting from December 18 to 19, Ueda could issue hawkish signals.
According to a recent Reuters survey, most economists do not expect a rate hike from the Bank of Japan this year, but nearly 90% expect interest rates to rise by the end of March 2024.
A key concern is the ongoing weakness of the Japanese yen, which has added to the pressure on the Bank of Japan to raise rates sooner rather than later. After a brief rebound to around 141 yen per dollar in September, the yen has fallen back to levels seen before the Bank of Japan's July rate hike. The exchange rate is currently hovering around 155 yen to the dollar, approaching the 160 mark.
Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, noted that the yen's weakness is creating new inflation risks, which increases the likelihood of a rate hike in December. Muguruma stated that if wages and service prices continue to rise at their current pace, the central bank might find it necessary to adjust its monetary policy stance.
Data released today showed that Japan's economy achieved its second consecutive quarter of growth in the third quarter, but the pace of growth has slowed. Figures released Wednesday showed that Japan's wholesale inflation in October rose at its fastest rate in more than a year, driven in part by the yen's depreciation, which has increased the cost of some imported goods.
On Thursday, yields on Japan's short-term bonds rose to their highest levels in over a decade, signaling that investors are preparing for the possibility of a rate hike by the Bank of Japan.
