BOJ rate-hike bets ramp up as Ueda and Himino spook traders
TRADERS now see the Bank of Japan’s December policy meeting as a “live” event, with comments from Governor Kazuo Ueda and one of his deputies shaking up wagers in the rates and currency markets.
Overnight-indexed swaps at one point on Thursday (Dec 7) showed an almost 45 per cent chance that the BOJ would end its negative interest rate policy this month, with remarks on Wednesday from Deputy Governor Ryozo Himino cited a key driver of the move. Just two days ago, they showed a 3.5 per cent risk.
Meanwhile, comments from Ueda in parliament this morning added upward pressure on bond yields and the yen. Himino presented a hypothesis for what might happen if the central bank ended the world’s last negative interest rate regime. His boss told lawmakers that the policy-making situation may become more challenging after year-end.
Japan’s benchmark 10-year government bond yield jumped 8.5 basis points to 0.73 per cent on Thursday, snapping a three-day decline, with the move getting an extra boost after weak demand from an auction of 30-year government debt. The yen strengthened 0.4 per cent against the dollar.
Himino’s speech was perceived as relatively hawkish and turned the BOJ’s Dec 18-19 meeting “live,” Daiwa Securities strategists Ryoma Kawahara and Kazuya Sato wrote in a note.
Shoki Omori, a strategist at Mizuho Securities, pointed to the selling of bonds and futures, as well as a boosting of swap rates.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
“Himino is cracking the belly of the curve,” he said. “It caused investors to begin pricing in the central bank’s exit from ultra-loose monetary policy in January rather than previous consensus view of April.”
The yen also strengthened against all of its Group-of-10 peers after Ueda’s comments on Thursday, sending it to near an almost three-month high of 146.23 against the dollar, reached earlier in the week. The Japanese currency traded at 146.73 per greenback as of 1.59 pm in Tokyo.
“It’s all about the BOJ,” said Mingze Wu, a currency trader at Stonex Financial. “FX traders appear happy to be buying the yen on risks of a BOJ move in December.”
In another sign that expectations of policy change are growing, today’s auction of 30-year sovereign securities had the lowest bid-to-cover ratio since 2015, while the so-called tail, or the difference between the average and lowest-accepted prices, was the longest on record. Yields on the debt jumped 8 basis points to 1.675 per cent.
The BOJ is preparing for an exit from ultra-loose monetary policy by conducting a special survey of market participants and holding a workshop to discuss its impact and side effects. Some market participants see the growing possibility of a US rate cut hastening the end of the BOJ’s negative rates.
“It is probably easier for the BOJ to take action in January when the Fed is unlikely to either raise or cut its benchmark rate,” said Tadashi Matsukawa, head of fixed-income at PineBridge Investments Japan. The central bank is likely to end the negative rate policy in January, he said. BLOOMBERG
Share with us your feedback on BT's products and services
