The Japanese yen rose after Bank of Japan Governor Kazuo Ueda signaled the possibility of a rate hike in December, boosting market expectations and suggesting a decline in the US dollar against the Japanese yen (USD/JPY) in line with bond yield spreads, BBH FX analysts reported.
Market odds of BOJ increase by 25 basis points jump to 80%
“The Japanese yen outperformed as Bank of Japan Governor Kazuo Ueda fanned the flames of a December rate hike. Board members “will consider the pros and cons of a rate hike and will make decisions as appropriate… Any hike would amount to an adjustment in the degree of easing, with the real interest rate remaining at a very low level,” Ueda said.
“The swap market quickly boosted the odds of the BOJ raising rates by 25 basis points on December 19 from 60% to 80%. We called for a BOJ hike in October given stronger fiscal support, robust activity and persistent inflationary pressures. The timing was not right, but those drivers are still intact and point to a rate hike in December. If so, USD/JPY will likely adjust lower towards the level indicated by the US-JPY spread.”
