(Dec 15): The yen outperforms its Group-of-10 peers on Monday (Dec 15) as investors ramp up bets the Bank of Japan will hike interest rates later this week.
The BOJ’s quarterly Tankan business survey showed Monday that confidence among Japan’s large manufacturers rose to the highest level in four years, reinforcing the anticipated move by the central bank. Chief Cabinet Secretary Minoru Kihara also said that the specifics of monetary policy should be left to the BOJ.
While all 50 economists surveyed by Bloomberg expect the central bank to raise its benchmark rate this month, some market participants are still betting on a weaker yen as Japan’s yields are expected to stay substantially below those of the US even after a potential BOJ move. Investors will be watching whether BOJ Governor Kazuo Ueda offers any hints on the future rate-hike path, which could help determine the yen’s direction.
On top of the firm Tankan results, “Kihara’s comments have nudged up market expectations of a follow-up rate hike to this week’s likely rate rise,” said David Forrester, a senior strategist at Credit Agricole CIB in Singapore. Still, “Ueda has tended to err on the dovish side in his comments recently, so there is room for some investor disappointment this Friday.”
Overnight index swaps show about a 94% chance of a move on Friday. Bloomberg News reported last week that BOJ officials consider it likely that interest rates will rise above 0.75% before their rate hike cycle is over, and a former executive director said that the BOJ may increase rates as many as four times by 2027.
The BOJ also released a report on firms’ stances on wage growth for fiscal 2026, and most of the reports from the bank’s head office and branches mentioned businesses expect to raise wages at about the same pace as the previous year.
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