(Bloomberg) — In the span of just a couple of days, swap market traders have raised their bets to near certainty of an interest-rate hike by the Bank of Japan at its meeting next week.
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Overnight index swaps on Friday showed as much as a 99% chance of a move by the BOJ at its Jan. 23-24 meeting, climbing from 71% on Wednesday.
BOJ Governor Kazuo Ueda strengthened market expectations on Wednesday after he said that the central bank will make a decision on hiking rates next week and indicated rising confidence over wage increases, taking the yen higher.
The moves gathered pace on Thursday after Bloomberg reported that the central bank’s officials see a good chance of a hike unless there are too many surprises from the arrival of Donald Trump at the White House.
READ: BOJ Is Said to See Good Chance of January Hike Barring US Shock
Japan’s government bond yields have been rising across the board, with the 2-year yield, which is sensitive to monetary policy expectations, climbing to its highest since 2008 on Wednesday. The yen also strengthened as much as 0.1% to 154.98 against the dollar, its strongest level since December, on Friday morning. The currency is trading at 155.56 at 3:00 p.m. Tokyo time after hovering around the 158 level earlier this week.
“It’s now almost certain that the BOJ will raise interest rates next week,” said Yukio Ishizuki, senior foreign-exchange strategist at Daiwa Securities Co. in Tokyo. “The final hurdle is Trump’s policies, but I don’t think the market will become extremely volatile as a result of his inaugural address.”
Finance Minister Katsunobu Kato said on Friday that he expects the central bank to conduct monetary policy appropriately in pursuit of its price stability target, adding that the specifics of policy should be left to the BOJ. Earlier in the day Kato had touched on the idea of higher interest rates.
“Interest rates that move when wages and prices rise is of course the natural state of the economy and through this the allocation of resources is optimized,” Kato said during a speech in Tokyo.
Almost three quarters of economists surveyed by Bloomberg predict a rate hike next week, reflecting a jump in expectations after Ueda’s remarks. Dollar-yen’s 1-week implied volatility, which covers the BOJ policy decision date, also climbed to its highest in a month.
