In last week’s column (December 1), written ahead of BOJ Governor Kazuo Ueda’s speech that morning, I argued that since it is difficult to foresee the Takaichi administration backing away from its platform of “responsible and proactive fiscal policy” in the near future, the BOJ should more clearly demonstrate a stance of dealing with inflation risk in order to put a brake on yen depreciation.
As well-known, Ueda declared in his December 1 speech in Nagoya that the board “will consider the pros and cons of raising the policy interest rate and make decisions as appropriate” at the December 18-19 monetary policy meeting. This was interpreted as effectively pre-announcing a rate hike.
Furthermore, on December 4, Reuters reported that “BOJ likely to raise rates in December, government to tolerate move” and Bloomberg similarly reported that “Key members of Prime Minister Sanae Takaichi’s government wouldn’t try to stop the Bank of Japan if it decides to raise interest rates in December,” effectively making a December rate hike a foregone conclusion.
In response, USD/JPY has corrected moderately in the direction of yen appreciation from the 157 level in late November to the current 155 level.
