BOJ preps markets for near-term hike as weak yen overshadows politics

Core Viewpoint - The Bank of Japan (BOJ) is signaling a potential interest rate hike as early as next month, driven by concerns over a declining yen and diminishing political pressure to maintain low rates [1][2][3]. Group 1: BOJ's Shift in Messaging - Recent changes in BOJ messaging have refocused attention on inflationary risks associated with a weak yen, moving away from earlier concerns about the U.S. economy [2]. - The BOJ's hawkish stance has been reinforced following a meeting between Prime Minister Sanae Takaichi and BOJ Governor Kazuo Ueda, which alleviated immediate political objections to rate hikes [3][4]. - Officials within the BOJ, including Ueda, are increasingly acknowledging that a weak yen could lead to higher inflation than previously anticipated [5]. Group 2: Market Expectations and Economic Indicators - A Reuters poll indicates that a slim majority of economists expect the BOJ to raise rates at its upcoming meeting on December 18-19, with projections for a hike to 0.75% by March next year [6]. - The sentiment among BOJ board members is shifting towards a consensus that conditions are favorable for a rate hike, with comments from members like Junko Koeda and Kazuyuki Masu suggesting that the timing is approaching [7][8]. - The impact of a weak yen on underlying inflation is becoming a critical factor in the BOJ's decision-making process, indicating a recognition of the lasting effects of currency fluctuations on prices [9].