(Bloomberg) -- Bank of Japan Governor Kazuo Ueda kept investors in the dark on when he’ll call time on the world’s last negative interest rate, following a stand-pat policy decision that pared some of the yen’s recent gains.

Ueda appeared determined to keep his options open at a press briefing after the central bank’s two-day meeting. He didn’t rule out policy normalization at any of the gatherings in coming months, while insisting he first needs to see more evidence that the BOJ will achieve its price stability target. 

He added that policymakers were unlikely to give an explicit warning of an impending rate hike, largely discounting the kind of telegraphing sometimes employed by the Federal Reserve and the European Central Bank.

“There isn’t much likelihood of us suddenly announcing that we’ll raise rates a month in advance,” Ueda said, having earlier remarked that surprises couldn’t always be avoided.

For speculators looking for more concrete hints of a January move, the decision and comments offered little to support that view. Ueda didn’t clearly rule out action next month, but he acknowledged there wasn’t much new information coming before that gathering. He also said it was too early to give specific details on any exit plans.

The yen extended its fall in choppy trading as Ueda spoke, dropping more than 1% against the dollar. 

Still, Tuesday’s decision won’t quell speculation that a rate hike is coming sooner or later. Inflation continues to outpace the BOJ’s price target and anecdotal evidence continues to suggest that wage hikes for next year are likely to be larger than this year, a result that would support the bank’s goal of achieving sustainable price growth.

At the same time, the strengthening likelihood of the Federal Reserve pivoting toward US rate cuts appears to limit the window for the BOJ to raise rates for the first time since 2007.

The BOJ chief’s comments overall point to April as a more likely time for rate hike liftoff than January, according to Hideo Kumano, executive economist at Dai-Ichi Life Research Institute and a former BOJ official. 

“Ueda doesn’t want to tie his hands but the signals are clear that he is coming closer to the end of the negative rate,” Kumano said.  

Swaps traders have priced in almost 90% odds of a rate hike by the April meeting, around 60% for March and close to 45% for the January gathering.

The central bank had earlier in the day left its short-term rate at -0.1% and maintained its yield curve control parameters in a unanimous decision. It also left forward guidance on policy unchanged.

What Bloomberg Economics Says...

“We don’t expect Ueda to indicate the central bank is rushing to end yield-curve control and negative rates. But he may try to further lay the groundwork for a smooth transition next year.”

— Taro Kimura, economist

Click here to read the full report. 

The yen drop was accompanied by gains in Japanese stocks, which have benefited from low borrowing costs and the weak currency. The Nikkei 225 closed up 1.4%.

The benchmark 10-year government bond yield fell as much as 5.5 basis points from its intraday high to 0.63% as expectations of a looming rate hike cooled a touch. That compares with a peak of 0.97% for the yield in the wake of the late October BOJ meeting when Ueda added more flexibility to yield curve control.

“The BOJ will end the negative rate while maintaining its easing framework,” said Mari Iwashita, chief market economist at Daiwa Securities Co. “A rate hike beyond that will face a high hurdle in terms of politics and economic fundamentals. To do so will mean the 2% target is surely being met, which is different from saying it has come within sight.”

The yen had touched a four-month high last week after the Fed signaled its policy pivot coming in 2024. Those earlier gains took had taken some of the pressure off Ueda, who faced the risk of sending the currency to a fresh three-decade low at recent meetings.

Some economists see the Fed’s dovish turn as putting a bookend on the timing for a BOJ policy move. If an end to the BOJ’s subzero rate were to trigger a much stronger yen, it would rekindle deflationary pressure in the economy. Pulling the plug on the negative rate when other central banks are starting to ease policy may also spark more volatility in markets.

On the other hand, if the Fed manages to engineer a soft landing for the US economy, it would put a floor under global growth, helping the BOJ.

Ueda largely ruled out the Fed as a factor, saying the BOJ wouldn’t rush its policy decisions based on what it thinks the Fed might do in three or six months’ time. 

Economists remain unconvinced.

“There is no doubt the Fed’s pivot is chilling the BOJ’s blood over its normalization plan,” Kumano said. “If the Fed cuts rates, for instance, after the BOJ’s April meeting, foreign exchange rates would end up getting a double punch that would prompt the yen to gain. That’s something the BOJ wants to avoid.”

--With assistance from David Finnerty, Yoshiaki Nohara, Erica Yokoyama and Hideyuki Sano.

(Updates market prices)

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