BUZZ-COMMENT-BoJ rate hike risk gathers momentum for next week

Jan 15 (Reuters) - The probability of an interest rate hike from the Bank of Japan at its January meeting has risen further to 69% after Governor Kazuo Ueda said he wants to discuss and decide whether to raise rates at the upcoming meeting.

Though, this was largely echoing the comments made by Deputy Governor Ryozo Himino, which were seemingly non-committal. The governor did point out that there was a lot of positive talk on wage hikes at the branch managers meeting. And as mentioned previously, the data has kept a rate hike on the table.

Recall that at the December press conference, Ueda emphasised that they needed “one more notch” of data before the next rate hike. Having stated that he will closely watch the branch manager survey, these latest remarks would suggest that the BoJ appears to be setting up for a rate hike at the January meeting, particularly with reports that the inflation outlook may be raised.

While the yen is naturally on the front foot, USD/JPY will likely have a difficult time in sustaining downside in the short run with U.S. yields hovering near recent highs. There is also a matter of the U.S. inauguration where looming tariff risks should keep the dollar underpinned. At the same time, given the recent talk of Japan FX intervention risks, it is likely that positioning is a lot less crowded than was the case in July 2024.

Therefore, better expressions of a hawkish BoJ trade is likely found on the crosses, in particular CHF/JPY. With the trajectory of Swiss rates heading towards zero, the franc is becoming the funder of choice, which should keep pressure on CHF/JPY going forward.

That said, should we see a rate hike next week, traders should be alert to potential source reports to telegraph said outcome. The use of sources has been a common feature under Ueda’s premiership, which is likely a tactic used to reduce the surprise impact for markets.

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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))