Ueda Kazuo disappoints, Bank of America and Nomura postpone the expected timing of the Bank of Japan's interest rate hike

According to the Zhitong Finance APP, after Bank of Japan Governor Kazuo Ueda expressed a cautious attitude towards interest rate cuts, analysts from Bank of America and Nomura Holdings have pushed back their expectations for the next interest rate hike by the Bank of Japan from January next year to March.

On Thursday, the Bank of Japan's policy board decided to maintain the short-term policy interest rate at 0.25% with a vote of 8 to 1. This indicates that, amid the uncertainty expected from the economic policies of U.S. President-elect Donald Trump, the policymakers at the Bank of Japan tend to act cautiously.

Kazuo Ueda stated at a press conference following the Bank of Japan's interest rate decision that more information about Japanese wages and Trump’s policies is needed before the Bank of Japan decides to raise interest rates. Ueda said, "We note that when we delay raising interest rates, if we ultimately wish to raise rates to a level close to neutral, it may mean that the pace of future rate hikes could accelerate. Of course, we will also consider this when formulating policy. That said, while core inflation is rising, the pace is moderate, which allows us to slow the pace of rate hikes. The reason we are moving slowly on rate hikes is that the rise in core inflation is very moderate."

It is noteworthy that Ueda expressed little concern about the weakness of the yen at this press conference and did not indicate any urgency for tightening monetary policy, further dampening expectations for an imminent increase in Japan's key interest rates. Until yesterday, the market believed that the Bank of Japan was most likely to raise rates in January next year.

Bank of America’s economists for Japan and Asia, Izumi Devalier, stated, "The tone of Ueda's remarks at the press conference was undoubtedly dovish. He did not provide any signals indicating that the Bank of Japan is inclined to raise rates in January next year."

Bank of America analysts expect the Bank of Japan to delay implementing monetary tightening, forecasting a rate hike in March next year, followed by increases of 25 basis points in October 2025 and April 2026. Previously, the analysts had expected the Bank of Japan to raise rates in January, July 2025, and January 2026.

Nomura Holdings analysts pointed out that due to Ueda's remarks leading to a weaker yen, market participants may closely monitor any verbal interventions from the Japanese Ministry of Finance and Ueda in the near future, including a speech he plans to give on December 25. Japanese Finance Minister Katsunobu Kato and Atsushi Mimura, the head of the Ministry of Finance's foreign exchange affairs, both expressed concerns about the recent trends in the yen's exchange rate on Friday. Kato added that Japanese authorities would take action at the appropriate time to support the yen.

Nomura Holdings analysts stated, "The January meeting will still be another 'live meeting,' and a rate hike is still possible. However, we believe Ueda's remarks do not strongly support expectations for a rate hike in January next year."

The market has already priced in the Bank of Japan's delay in raising rates. Earlier on Friday, the yen fell to a five-month low, and yields on two-year and ten-year Japanese government bonds declined. Overnight swap indices show that the likelihood of the Bank of Japan raising rates in January next year is only 45%, down from about 60% last week.