To boost December actions, the Governor of the Bank of Japan stated that wage trends are key to interest rate hikes, and the yen rose over 1% during the session

Recent data has strengthened market expectations for a rate hike by the Bank of Japan next month. Bank of Japan Governor Kazuo Ueda stated that as domestic inflation and the economy develop in line with the central bank's forecast, a rate hike is "approaching," adding fuel to the expectations for an increase.

In an interview with Nikkei News published on Saturday, November 30, local time in Japan, Ueda did not explicitly support a rate hike in December but emphasized that wage trends are key to such a decision. He stated:

"If we (the central bank) are confident, or say certain that the economy will develop as our economic and price outlook predicts—especially that the core inflation rate will rise to 2%—we will adjust the degree of monetary easing at the appropriate time."

Ueda told Nikkei News that the next rate hike is "imminent, as economic data has come back on track." He is keen to closely monitor wage trends, particularly the wage negotiations in the spring of 2025, known as "Shunto." He noted that wage growth is approaching a level consistent with a 2% inflation rate, while also pointing out the uncertainty surrounding the U.S. economic outlook with Trump set to take office.

Ueda also mentioned that as inflation rises above 2%, further depreciation of the yen could prompt the central bank to take "countermeasures."

After the interview with Ueda was released this Friday Eastern Time, the yen's intraday gains further expanded. During the U.S. midday trading session, the dollar fell below 149.50 yen, hitting its lowest level since October 21, with a decline of nearly 1.4% on the day.

According to Kyodo News, on Thursday, the Japanese Trade Union Confederation discussed the negotiation guidelines for the 2025 Shunto, including demands for a salary increase of over 5% during the Shunto, while small and medium-sized enterprise unions are seeking increases of over 6%. The report noted that in the 2024 Shunto, unions under the Confederation achieved an average salary increase of 5.1%, the first time in 33 years that the increase exceeded 5%. However, the Confederation believes that after this year's Shunto, the gap with small and medium-sized enterprise unions has widened, and they will demand additional salary increases to correct this.

Before Ueda's interview was released, the Japanese government announced on Friday that the Tokyo CPI in November grew by more than 2%. Specifically, the CPI rose by 2.6% year-on-year, compared to an expected 2.2%. Excluding fresh food, the CPI rose by 2.2% year-on-year, exceeding the expected growth rate of 2%. The latest data shows that inflation in Japan is accelerating, coupled with other data indicating that economic performance generally aligns with the Bank of Japan's forecasts, leading to a noticeable increase in market expectations for a rate hike.

Wallstreetcn mentioned that following the release of the Tokyo CPI, overnight expectation contracts indicated that investors expect a 63% probability of a rate hike by the Bank of Japan at its next meeting in December. Earlier this month, the expected probability of a rate hike was only about 30%. The article also noted that according to a Bloomberg survey, over 80% of economists expect the Bank of Japan to raise rates again before January Bloomberg reported that the Governor of the Bank of Japan typically gives one or two media interviews each year, and this interview was conducted before the Bank of Japan's monetary policy meeting in December, which may be part of the central bank's efforts to strengthen external communication. The most recent interest rate hike by the Bank of Japan on July 30 surprised some market participants, laying the groundwork for market turbulence in early August, leading to criticism of the central bank's communication