Yen hits 8-month low as BOJ hints at December rate hike

The Bank of Japan (BOJ) dropped its strongest hint yet that a further interest‑rate increase could come as early as December, as the Japanese yen slid to its lowest level in eight months.

A summary of the central bank’s meeting noted that “conditions for taking a further step toward the normalization of the policy interest rate have almost been met.” This suggestion aligns with the predictions of most markets.

During the meeting, one of nine board members outlined the likelihood of initiating another step towards normalizing the policy interest rate. The member made this statement while emphasizing the importance of paying attention to the factors driving inflation. 

These remarks were part of a summary published on Monday. During their two-day meeting that concluded on October 30, the board voted 7-2 to keep the rates unchanged.

The nine-member board favors increasing interest rates

The summary released this week indicates that the nine-member board is leaning toward the idea that a rate hike is approaching. This idea aligns with the recent suggestion by the Governor of the Bank of Japan, Kazuo Ueda, who has proposed a potential move in the upcoming months.

Following this news, almost all analysts tracking BOJ anticipate that borrowing costs will increase by January. With this prediction in mind, people’s attention is now on whether this forecast will occur on December 19 or January. 

Following the release of the summary, reports indicate that the yen traded at approximately 153.80 against the dollar. This was after attaining an eight-month low record of 154.48 last week. 

Meanwhile, it is worth noting that the BOJ maintained its policy rate at 0.5% during the October meeting. The decision was made, although two dissenting votes called for an increase for the second time. 

A survey conducted by a reliable source last month found that approximately half of those monitoring the BOJ believe the central bank will raise borrowing costs in December. On the other hand, almost 98% of these individuals predict that the increase in borrowing costs will take place by January at the latest. 

Ueda points out the impacts of expectations for wage changes on interest rates 

Regarding the BOJ’s decision to maintain the interest rates steady in October, Ueda asserted that a rate hike could occur as soon as next month. However, he mentioned that this move will take place depending on expectations for wage changes in 2026.

Nevertheless, the yen weakened as investors were selling, hoping for a strong statement from the Governor. This followed recent comments from US Treasury Secretary Scott Bessent, who said the central bank needs to act faster on rate hikes.

In the meantime, as many forecasted, the bank held its short-term policy rate at 0.5%. Not all board members agreed on this decision. An example of these board members includes Hajime Takata and Naoki Tamura, who expressed their disagreement, citing their September proposal to raise the rates to 0.75%.

Ueda added that the growing perception in the market is that the conditions for a rate hike are falling into place. He said the possibility that the BOJ will achieve its basic forecast has “strengthened somewhat.”

The Governor further explained that the BOJ hopes to wait for “a bit more data” to gauge whether companies will still lift wages in the face of rising US tariffs.

“I’m not saying we should wait until we have the final results of next year’s wage talks,” Ueda said when reporters asked him if he believes there will be enough data to consider a rate increase at December’s meeting. Based on his argument, the bank wants to gather more information on how these talks start.

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