The Bank of Japan is preparing markets for a possible interest rate hike as soon as next month, sources say, reviving previous hawkish language as worries about sharp yen declines return and political pressure for the bank to keep rates low fades.
A change in BOJ messaging over the past week has shifted focus back to inflationary risks of a weak yen from earlier worries about the U.S. economy, comments aimed at reminding markets a December rate hike was still a prospect, two people familiar with the bank’s thinking told Reuters.
The pivot back to a hawkish footing also follows a key meeting between Prime Minister Sanae Takaichi and BOJ Governor Kazuo Ueda last week, that appeared to remove immediate political objections to rate hikes from the new administration.
To be sure, the decision to raise rates in December or hold until January remains a close call with the U.S. Federal Reserve’s rate decision — which comes a week before the BOJ’s — seen swaying yen moves, said one of the sources.
However, recent remarks from various officials including Ueda reflect a growing view within the bank a weak yen has become a trend and could drive up inflation more than in the past, both sources said.
