The yen continues to decline! Will the Bank of Japan Governor signal a rate hike in December next week?

Next Monday, Bank of Japan Governor Kazuo Ueda will hold a press conference. The market is closely watching his remarks for clues on further interest rate hikes by the Bank of Japan.

This will be the first time Ueda has directly discussed monetary policy since Trump won the U.S. presidential election.

Currently, there is a divergence in the market regarding whether the Bank of Japan will raise interest rates next month or in January next year.

Some analysts believe that, given the unexpected rate hike in July triggered a market shock in August, Ueda's remarks may adopt a more cautious tone this time. If the Bank of Japan wishes to lay the groundwork for the policy meeting on December 18-19, Ueda may release some hawkish signals.

According to a recent Reuters survey, most economists expect the Bank of Japan will not raise interest rates again this year, but nearly 90% of economists expect rates to rise by the end of March next year.

Yen Continues to Decline, Increasing Pressure for Central Bank Rate Hike

Notably, the recent decline in the yen's exchange rate has further increased the pressure on the Bank of Japan to raise interest rates soon.

After a brief rebound to around 141 yen in September, the yen has fallen back to the level before the Bank of Japan's rate hike in July. Currently, the exchange rate is around 155, approaching the 160 level.

Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, stated that the weakness of the yen brings new inflation risks, increasing the likelihood of a rate hike by the Bank of Japan in December.

“As long as wages and service prices continue to grow at the current pace, the Bank of Japan may find that adjusting monetary support is sufficient.”

The GDP data for the third quarter released today shows that the Japanese economy achieved sequential growth for the second consecutive quarter, but the growth rate has slowed.

Data released on Wednesday indicated that due to the yen's decline, which raised the import costs of some goods, wholesale inflation for Japanese companies in October grew at the fastest pace in over a year.

On Thursday, Japanese short-term bond yields rose to their highest level in over a decade, indicating that investors are preparing for a rate hike by the Bank of Japan.