Given that traders are pricing in just ~50 bps of rate hikes for the whole year, that shows the tight level of conviction among traders on their view towards the BOJ. That is the BOJ will just be delivering a rate hike once in each half of this year only. So, therein lies the risk for the Japanese yen currency as well.
Here are what some analysts are saying on the BOJ decision tomorrow (h/t @ MNI - Market News):
"We recently moved up our forecast for the next BoJ hike and see it hiking to 0.5% at the 1/24 MPM, barring market shocks. Though data since the summer have been "on track" for further BoJ policy adjustment, we had thought that central bank may prefer to wait until March to deliver its next hike, in order to have more time to assess the new US administration's policies. Governor Ueda's cautious tone at his post-Dec monetary policy meeting (MPM) press conference reinforced this view.
"Thus, if the BoJ does end up delivering a hike this week, as expected, we forecast the central bank to follow up with additional hikes in July '25 and January '26 (moved up from Oct '25 and Mar '26 in our previous forecasts) for a terminal rate of 1%." - BofA
"We maintain our call for a 25bp hike at this week's meeting (followed by further hikes in June and December). However, a hike is still a relatively close call at this point, and it could be delayed to March. The focus is on whether US policy (particularly on tariffs) that could be announced after the US Presidential inauguration and prior to the BoJ meeting will be benign for the Japanese and global economies and not cause turbulence in financial markets." - Citi
"At the press conference following the December 2024 Monetary Policy Meeting (MPM), Bank of Japan Governor Kazuo Ueda said that another notch of increased confidence in the outlook would be needed for the next rate hike, pointing to wage hike momentum in this year's shunto spring wage negotiations and the direction of the new US administration's economic policies and their impact as key points for assessment. Considering this, we expect the BoJ to decide to raise the policy rate to 0.5% at the upcoming January MPM for three reasons:
“First, the January branch managers' meeting confirmed that wage hike momentum was spreading broadly into a wide range of industries and corporate size, albeit with some caution.
“Second, with the inauguration of the new Trump administration on January 20, just before the January MPM, the direction of the new US administration's economic policies should gradually become clearer.
Third, the current USD/JPY rate is weaker than before the December 2024 MPM. From a risk management perspective, postponing the next rate hike could risk further yen depreciation. At the time of the December 2024 MPM, the yen appreciated to some extent, which is possibly why the BoJ decided against a rate hike then. However, the yen has weakened since the December meeting. Therefore, we see less leeway for the BoJ to postpone a rate hike due to uncertainty around the new US administration's policies." - Goldman Sachs
“Deputy Governor Ryozo Himino said in a speech on 14 January that “at the monetary policy meeting to be held next week, the board will have discussion to decide whether to raise the policy rate or not.” The next day, Governor Ueda echoed that remark in a speech to the Regional Banks Association of Japan. This led market participants to price in a greater probability of a rate hike at the January Monetary Policy Meeting. When added to comments by Economic Revitalization Minister Ryosei Akazawa on 14 January and Finance Minister Katsunobu Kato the following day indicating they had no intention of opposing a rate increase in January, this would seem to suggest a hike is imminent." - Mizuho
This article was written by Justin Low at www.forexlive.com. Read More Details
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