Bank of Japan Governor hints at rate hike, but market still bets on weaker yen

On December 8, the market speculated that the Bank of Japan might raise interest rates this month, but participants still bet that the yen will continue to weaken. Traders from Bank of America, Nomura Holdings, and RBC Capital Markets stated that investors’ positions reflect this bet. Citigroup’s “pain index” for the yen remains deep in negative territory, indicating persistent negative sentiment toward the yen in the market. Even as Bank of Japan Governor Kazuo Ueda hinted that rates may be raised soon, and with reports that the BOJ is prepared to hike rates in December as long as there is no major shock to the economy or financial markets, investors are still sticking to their bearish outlook on the yen. The reason is that even if the BOJ takes action, Japan’s yields are still expected to remain significantly below those of the US, favoring the dollar. Ivan Stamenkovic, head of G-10 currency trading for Asia Pacific at Bank of America, stated: “Positioning is still skewed toward betting on the dollar/yen rising further into year-end, and unless the Bank of Japan delivers a real surprise, that trend is unlikely to change.” He added that Ueda’s hawkish comments have sparked discussions about the currency pair, but there has been no substantial shift in market sentiment. (Jin10)