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Danger for Yen Emerges With Speculation BOJ May Stand Pat Longer - BLOOMBERG
(Bloomberg) -- A new risk for the yen is emerging, with currency strategists in Tokyo warning that there’s a chance the Bank of Japan may stand pat on interest rates until March or later.
A small taste of the dangers ahead came Wednesday, when the yen slumped to its weakest in level in more than two weeks as traders reacted to a Bloomberg report that BOJ officials saw little cost to waiting before raising rates.
That jolt only took the currency to 152.82 versus the dollar, and came against the backdrop of debate over whether the central bank would make its move on Dec. 19 or at the following meeting about a month later. A subsequent report by Reuters on Thursday, indicating that policy makers aren’t inclined to rush, saw the yen erase its small intraday gain.
Shusuke Yamada, head of Japan currency and rates strategy at Bank of America Corp. in Tokyo., said that the picture would be very different if policy makers postponed for longer.
“There’s a good chance that the yen carry trade theme will return if the rate hike is delayed until March,” Yamada said. “It’s possible that the yen would weaken again to 155 or just below the 157 level it hit in November.”
While 44% of economists surveyed by Bloomberg predict the BOJ will raise its policy rate next week, and 52% see this happening in January, signs of a slower path are visible in overnight indexed swaps. These suggest the prospects of a December hike have receded to 15%, with a 76% likelihood of a move by the January gathering and 94% by the March decision.
“If it turns out they can’t do it in January, there is a risk that this will lead to a sense of mistrust over whether the BOJ will really be able to raise rates,” said Takeru Yamamoto, a trader at Sumitomo Mitsui Trust Bank in New York. “There is also a risk that the yen could return to the high 150s.”
BOJ Governor Kazuo Ueda said in a Nikkei interview last month that hikes were “nearing.” Then a few days later came a report from Jiji Press that highlighted growing concern inside the central bank about a premature rate hike. Dovish policy board member Toyoaki Nakamura said last week that he doesn’t object to a rate hike but would have to look at data to decide on policy this month.
The yen was little changed at 152.51 to the dollar at 4:02 p.m. in Tokyo.
Eiichiro Miura, head of Nissay Asset Management Corp.’s strategic investment department, said a rate hike is unlikely until the April meeting or later.
Still, others such as Carol Kong, a currency strategist at Commonwealth Bank of Australia in Sydney, noted that a further depreciation of the yen may push the BOJ to hike rates sooner rather than later.
She said the latest US inflation data increased the likelihood of the Federal Reserve delivering a hawkish message along with an expected rate cut next week, which would see the Japanese currency weaken versus the dollar and bolster the chances of a BOJ rate hike.
--With assistance from Masahiro Hidaka, Daisuke Sakai, Hidenori Yamanaka and Momoka Yokoyama.
(Updates with new prices and Reuters report)
