The yen was helped by Bank of Japan Governor Kazuo Ueda’s statement that a rate hike was “imminent” as inflation and economic trends develop in line with the central bank’s forecasts, but he did not explicitly support a December rate hike.

Ueda gave an interview to the Nikkei newspaper in Tokyo last Thursday. The content of the interview was released last Saturday. In the interview, he said: "If we have confidence or certain that the economy will develop as predicted in our economic and price outlook, especially that the underlying inflation rate will rise to 2%, we will adjust the degree of monetary easing at the appropriate time. From the perspective of economic data being on track, the next rate hike is approaching."

The yen briefly rose to 149.47 per dollar from around 150.42 before the interview. The yen had already risen nearly 1% earlier on Friday as bets on a Bank of Japan rate hike in December rose after data showed inflation in Tokyo accelerated more than expected.

While the BOJ governor typically gives media interviews once or twice a year, the most recent one came ahead of the December policy meeting and may be part of the central bank's efforts to improve communication.

The Bank of Japan has been criticized for its messaging ahead of its July 31 rate hike. The move caught some market participants by surprise and set the stage for market turmoil in early August. The Bank of Japan’s next policy meeting is on Dec. 18-19, followed by another on Jan. 23-24. The central bank’s key overnight policy rate remains extremely low at 0.25% compared with global levels.

Ueda said wage growth is approaching a level consistent with 2% inflation and he wants to keep a close eye on wage trends, especially the momentum of wage negotiations in spring 2025. He added that while it will take some time to confirm the momentum, it does not mean the BOJ cannot decide on policy before then.

Ueda also noted the need to remain vigilant about the U.S. economy given the upcoming Trump administration. The president-elect has threatened to impose high tariffs on other countries, clouding the outlook for global trade.

He said the trajectory of the world's largest economy was marked by "a big question mark." Ueda has previously said uncertainty about the U.S. economy was helping to cool expectations for policy changes.

Still, investors are increasingly buying into economists’ view that the Bank of Japan is more likely to raise rates in December than wait until January. In early November, overnight swaps priced in a 30 percent chance of a December rate hike, while expectations this week were around 66 percent.

In an October Bloomberg survey, more than 80% of economists said they expected another rate hike by January, with just over half of respondents believing it would come in December.

Japan’s key inflation gauge has remained at or above its 2% target for more than two and a half years. Friday’s Tokyo price growth data beat consensus forecasts, raising hopes that the Bank of Japan’s long-sought wage-inflation positive cycle may be emerging.

That has fueled the yen’s strength, moving it away from levels seen as likely to attract Japanese intervention. Still, the yen is much weaker than it was in April 2023, when Ueda took over as BOJ chief.

He said further yen weakness could pose a significant risk as inflation rises above 2% and would require "countermeasures" from the central bank.

The US-Japan interest rate gap is gradually narrowing

The interview comes as investors and economists look for clearer signals from the central bank on its policy intentions. Ueda’s latest comments left open the possibility of a December rate hike but did not frame himself in that position.

Ueda had said last week it was "impossible" to predict the outcome of the next meeting because a large amount of new data has yet to be released.

A special session of parliament that opens in Tokyo this week is likely to provide Ueda with another opportunity to convey his views on monetary policy after the BOJ governor noted the lack of opportunities for the central bank to communicate its thinking ahead of a rate hike in July.

Article forwarded from: Jinshi Data