(Bloomberg) -- Bank of Japan Governor Kazuo Ueda will speak at an annual event Monday that will attract close scrutiny for any hints over the timing of the central bank’s next interest-rate hike.
Ueda will exchange views with local business leaders from 10 a.m. on Monday in Nagoya, before speaking at a press briefing at 1:45 p.m., according to the BOJ on Friday. The central bank typically holds an event in Nagoya in November each year featuring an address by the governor.
The BOJ chief’s remarks will be closely watched by market players after the yen’s weakening trend picked up pace in recent weeks, raising upside inflation risks and boosting bets on an interest rate hike next month.
The speech will be the last major scheduled speech Ueda can use to communicate his thinking regarding monetary policy ahead of the next board meeting.
The swaps market shows a 53% chance of a December move as of Friday, following economic growth data earlier in the morning that showed consumption continuing to recover. That’s up from around 44% a week ago and matches the view of economists surveyed by Bloomberg last month.
Both the survey and the swap market point to a likelihood of more than 80% that the central bank will move by its January meeting. An uptick in spending by households driven by rising wages is seen as an important factor backing the case for continued rate increases.
Weakness in the yen is another key element that could prompt the BOJ to move. Some economists say the central bank’s rate hike in July was largely triggered by a slide in the currency.
Tokyo has already spent more than $100 billion defending the yen this year and would likely want to avoid resorting to more direct intervention if possible. The US Treasury kept Japan on its list of countries whose currency practices warrant monitoring in a report issued overnight.
The BOJ’s efforts to telegraph its thinking on policy have taken on added significance after authorities came under criticism for hiking in July, in a move that surprised many market participants and contributed to financial market turmoil in early August.
Even Ueda’s fellow board members have acknowledged the need to improve communications. That suggests the governor will look to give a clearer signal before the central bank’s next move to raise borrowing costs.
Still, the Nagoya speech may come a little too early for Ueda to say anything that commits the bank to a specific move next month. Ueda will likely strive to strike a balance to avoid getting boxed in to any position before the Dec. 18-19 gathering.
More data are coming and uncertainties remain high over financial markets in the process of assessing the outlook for the US economy under President-elect Donald Trump.
At the same time, Ueda won’t likely want to sound overly dovish, as it might push the yen lower. At the end of April, the chief intensified the yen’s fall after his comments were taken as a greenlight for more depreciation. The yen’s abrupt retreat prompted the Ministry of Finance to intervene in the currency market a few days later.
The governor could also be summoned to parliament to respond to questions nearer to the staging of the December meeting and may prefer to use such an occasion to hint at a near-term move, if there is one in the pipeline.
Ueda last month said he will stop saying the central bank has enough time to carefully watch risks from the US economy as the chances of a severe downturn have ebbed, an indication he is already laying the groundwork for another move. The governor said the bank will return to a normal mode, with decisions made on a meeting-by-meeting basis.
(Adds more details and latest information on swaps.)
©2024 Bloomberg L.P.