(Bloomberg) -- The risk of the Bank of Japan roiling markets in March appears to be increasing, with economists on high alert for a policy shift after some traders dialed back their bets in recent months.

Traders of overnight indexed swaps — who last year were certain that the central bank would end its negative-interest-rate policy by the March 18-19 gathering — now see the chances around 34%. By contrast, economists who previously considered a move next month as unlikely are now talking about the meeting as a “live” event.

Seven of 15 Tokyo-based economists contacted by Bloomberg this week said there is a prospect of the BOJ ending negative interest rates in March, with three seeing it as almost certain and four judging it as possible. Overall, the economists still forecast April as the most likely time for a policy shift. OIS price around an 85% chance of a hike by the April gathering.

“Short- and medium-term bond yields don’t seem to be adequately pricing in a move,” said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management Co. “If negative interest rates are lifted in March, bond yields may jump unexpectedly.”

Naomi Muguruma, chief fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co., said that given current pricing in markets, a March hike by the BOJ would likely bring a spike in short-term yields that could flow through to longer-maturity debt as well.   

This is in turn would probably strengthen the yen, which until recently has supported the Japanese stock market, in part because its weakness helped exporters. Higher yields in Japan would also encourage the nation’s institutional investors, who are among the biggest players in global bond markets, to keep more money at home.

To be sure, yields of policy-sensitive two-year Japanese government bonds have been rising, and this week edged up to the highest in more than a decade, indicating changes in some parts of the market. 

The dialing back of bets in the swaps market is striking given that traders have typically run ahead of economists in recent years, and because BOJ officials have become more open in recent months about discussing a future policy shift.

The impact of traders being wrong-footed could be compounded, or mitigated, by uncertainty over when other central banks such as the Federal Reserve begin making much-anticipated rate cuts. Investors are watching for clues from key US economic data this week, including the Fed’s favored inflation gauge.

Economists have taken notice of signs from top BOJ policymakers that they’re preparing for a rate move. Governor Kazuo Ueda signaled last week confidence over the prospects for achieving stable inflation that would allow policy normalization. That followed Deputy Governor Shinichi Uchida discussing earlier this month policy options after negative rates are ended.

Fueling further speculation of a near-term rate hike, BOJ board member Hajime Takata said Thursday that the bank’s price target is finally coming into sight. His remarks caused the yen to rise and government bond futures to drop.

These comments indicate to some economists that the first BOJ rate hike since 2007 is imminent, and that bond yields and the yen may not be fully reflecting this.

“Of course it’s time for the BOJ to normalize policy,” as radical monetary easing measures are no longer needed, Hiroshi Yoshikawa, an economics professor emeritus at the University of Tokyo and a friend of the BOJ’s Ueda, said in a a recent interview.

--With assistance from Toru Fujioka, Sumio Ito and Masaki Kondo.

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