Kazuo Ueda's remarks have stirred up a storm! Interest rate hike expectations rise, and Japanese bond yields soar to new highs

According to the Zhitong Finance APP, Bank of Japan Governor Kazuo Ueda hinted in an interview that an interest rate hike is "imminent" as economic trends align with expectations, a statement that has driven up Japanese government bond yields. Subsequently, the two-year government bond yield climbed to its highest level since 2008, while the ten-year government bond yield also rose to 1.075%. The market predicts a 60% chance of a rate hike in December, approaching 90% by January. Meanwhile, U.S. Treasury yields have also been affected by the rise in Japanese government bond yields, with the ten-year Treasury yield increasing to 4.22%. Traders are closely monitoring the U.S. non-farm payroll data set to be released later this week for more insights into the U.S. economic situation. Ataru Okumura, a senior interest rate strategist at Mitsui Sumitomo Trust and Banking, analyzed that "given the Bank of Japan's long-standing emphasis on communication during the rate hike process, Governor Ueda's interview at this time may be seen by the market as a signal that the likelihood of a December rate hike is increasing." Recently, expectations for a potential rate hike in Japan in December, along with the results of the U.S. elections, have jointly driven up bond yields in both Japan and the U.S. Specifically, the yield on Japan's 30-year bonds reached its highest point since 2010 last month, while the yield on five-year bonds also hit a new record in 15 years. In addition to the rate hike expectations, Ueda emphasized the importance of the core inflation rate rising to 2% and stated that the central bank should pay attention to the U.S. economy and the issue of yen depreciation. He believes that yen depreciation may require the central bank to take "countermeasures," further exacerbating market concerns. The Bank of Japan has faced criticism for its lack of communication, particularly regarding the insufficient communication before the rate hike on July 31, which triggered severe volatility in global markets in early August. Some analysts believe that Ueda's interview may be aimed at preventing a repeat of similar market turmoil in the future. As a result of these factors, the yen has fallen to 150.55 against the dollar. Additionally, the warnings from U.S. President-elect Trump regarding BRICS nations have intensified the strengthening trend of the dollar. In the coming week, investors will focus on a series of U.S. data for more clues regarding monetary policy and the dollar-yen exchange rate. "We are witnessing a comprehensive recovery of the dollar," commented Alvin Tan, head of Asian foreign exchange strategy at Royal Bank of Canada Capital Markets. "The market has fully anticipated the Bank of Japan's rate hike action in January next year, so Ueda's remarks are within market expectations and are not surprising."