(Bloomberg) -- The yen slumped versus the dollar after Bank of Japan Governor Kazuo Ueda pushed back against bets for a near-term interest rate hike, saying it’s difficult to lay out a plan for an exit.

The currency weakened as much as 1.5% to 144.96 during European trading hours as traders digested Ueda’s comments at a press conference after the central bank kept its ultra-accommodative policy intact, as expected. Japan’s benchmark 10-year sovereign bond yield fell three basis points to 0.635%. The Nikkei 225 closed 1.4% higher. 

“The yen reaction shows that clearly there is some disappointment in the market that Ueda did not lay down the groundwork for a specific exit policy,” said Jane Foley, head of FX strategy at Rabobank. 

The yen has strengthened over the past month, with gains accelerating in recent weeks as investors positioned for the BOJ to end negative rates early next year, and after the Federal Reserve signaled a pivot to interest-rate cuts in 2024. The currency had tumbled to this year’s weakest level of 151.91 in November. 

Meanwhile, Japan’s stock market has come off its 2023 highs and declined in recent weeks in conjunction with the yen’s advance. The 10-year bond yield is down from as high as 0.97% on Nov. 1.

Comments earlier in December from Ueda and one of his deputies sparked speculation of an exit from sub-zero interest rates as early as this month, triggering volatility in the yen. The view subsided after people familiar with the matter said the central bank saw little need to rush to scrap the policy this month. 

Read: BOJ Avoids Rate Hike Signal as It Stands Pat, Driving Yen Lower

“Some market participants may have positioned for a policy change today and needed to cover the position,” said Naka Matsuzawa, chief strategist at Nomura Securities Co.

Prime Minister Fumio Kishida said last week the government and the central bank coordinate policy closely. In a 2013 joint statement, the government and central bank agreed to strengthen coordination with BOJ committing itself to achieving 2% inflation while the government makes efforts to revitalize economy. 

Central bank watchers are increasingly expecting the BOJ to achieve its inflation target, with a growing majority forecasting authorities will end the negative rate regime by April, according to a Bloomberg survey.

--With assistance from Winnie Hsu and Aline Oyamada.

(Updates yen’s move in second paragraph.)

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