LIVE MARKETS-Bank of Japan hike in play next week

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BANK OF JAPAN HIKE IN PLAY NEXT WEEK

The yen JPY=EBS has jumped on Wednesday after Bank of Japan Governor Ueda said the central bank will debate raising rates next week, a day after his deputy said similar.

The recent commentary has seen markets add to bets for a quarter-point hike on Jan. 24, with traders now prescribing about a 70% chance to that outcome.

One of the issues facing Japan's policymakers is Trump's upcoming inauguration and the uncertainties surrounding his trade policy.

Trump's economic policy and momentum of this year's wage negotiations in Japan are key in deciding the rate-hike timing, Ueda said.

"A lot of course depends on next Monday with Trump, if it wasn't for that event risk this market would be close to fully pricing in the meeting," writes Jordan Rochester, head of FICC strategy EMEA at Mizuho.

"The downside move in USD/JPY this morning is the right thing to see," says Rochester.

"...but it won't be as large of a move as we saw after the BOJ's first hike as long USD/JPY positioning this time around is near non-existent," Rochester adds, given the market's concerns about FX intervention and the lessons learnt from August's carry trade unwind.

For Japanese equities, Citi believes they are likely to remain range-bound in the near term after their year-end rally.

"We see little scope for a pullback given that they continue to lag the US, are attractively valued relative to global peers, and share price returns reflect downward revisions to analyst estimates to some extent," Citi equity strategist Ryota Sakagami says.

Sakagami believes picking stocks relatively unaffected by macro factors will become more effective, given the uncertainty around Trump's presidency.

"Factors that tend to be effective in a basket of macro-free stocks include high dividend yield and next-FY profit growth," Sakagami adds.

(Samuel Indyk)

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