(Bloomberg) -- Market expectations of a Bank of Japan interest rate hike this month sank after a local media report cast doubt on an increase, and the predictions hardly budged even after one of the policy board’s most dovish members said he isn’t opposed to higher rates.
Overnight indexed swaps on Thursday were pricing in a 37% chance of a rate hike at the central bank’s Dec. 18-19 meeting, falling sharply from 66% on Nov. 29. The figure was little changed after BOJ board member Toyoaki Nakamura said he doesn’t object to a rate hike but would have to look at data to decide on policy this month.
Still, the yen jumped as much as 0.6% and Japanese government bond futures fell given the switch from Nakamura’s more dovish comments earlier in the day.
A Jiji Press report on Wednesday said that inside the BOJ the view is growing that a premature rate increase should be avoided, unless there’s a big risk of consumer prices rising on factors such as a weakening yen. That was in contrast to BOJ Governor Kazuo Ueda’s remarks in an interview with Nikkei that rate hikes were “nearing” as inflation and economic trends develop in line with the central bank’s forecasts.
“If the information was released with intention by the BOJ, it may be trying to prevent the misunderstanding that it has already decided to raise interest rates at the December meeting,” wrote Yusuke Matsuo, a senior market economist at Mizuho Securities Co., in a note, referring to the Jiji report.
With the Federal Reserve’s policy outlook also uncertain, the wide rate differentials between Japan and other economies may keep the yen weak. Nakamura said that a decision has not been made for December, and that he’s closely watching Tankan and wage data before the central bank’s meeting. The yen had earlier trimmed its gains after Nakamura said that he’s not confident about the sustainability of wage hikes.
“Nakamura’s comments were less dovish than the market had expected,” said Keiko Onogi, senior JGB strategist at Daiwa Securities Co. “Investors are trying to work out how to interpret these comments and media reports from the BOJ, and the communication with the market is becoming more complex.”
--With assistance from Saburo Funabiki.
(Adds BOJ board member Nakamura’s comments, updates prices)
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