Market expectations for a Bank of Japan (BOJ) interest rate hike this month dropped significantly following a local media report that cast doubt on the likelihood of an increase, exerting pressure on the yen.

As of Thursday, overnight indexed swaps reflected only a 40% probability of a rate hike at the BOJ’s Dec. 18-19 meeting, down sharply from 66% on Nov. 29. The yen remains weaker than the key 150 per dollar threshold, despite recovering some ground after a 1.1% drop on Wednesday.

A report from Jiji Press on Wednesday suggested that within the BOJ, there is a growing consensus against a premature rate hike unless there is a significant risk of rising consumer prices, potentially driven by a weakening yen. This contrasts with BOJ Governor Kazuo Ueda’s earlier remarks to Nikkei, where he indicated that rate hikes were "nearing" as inflation and economic conditions aligned with the bank’s forecasts.

“If the BOJ intentionally released this information, it may be aiming to correct the misconception that a rate hike is already decided for the December meeting,” wrote Yusuke Matsuo, a senior market economist at Mizuho Securities Co., in a note. With the Federal Reserve’s policy direction also uncertain, the wide interest rate gap between Japan and other economies could keep the yen under pressure. 

Investors are closely watching BOJ board member Toyoaki Nakamura’s speech and press conference today for further insights into the central bank’s monetary policy and the future trajectory of the dollar-yen exchange rate. 

“Given today’s speech by the dovish board member, expectations for a BOJ rate hike are unlikely to increase,” noted Yujiro Goto, head of foreign exchange strategy at Nomura Securities Co., in a report.

Paraphrasing text from "Bloomberg" all rights reserved by the original author.