The Japanese yen gained as BOJ Governor Kazuo Ueda signaled a potential December rate hike, boosting market expectations and suggesting a lower USD/JPY in line with bond yield spreads, BBH FX analysts report.

Market odds for 25bps BOJ hike Jump to 80%

"JPY outperforms as Bank of Japan (BOJ) Governor Kazuo Ueda fanned the flames of a December rate hike. Ueda said board members 'will consider the pros and cons of raising the policy interest rate and make decisions as appropriate…Any hike would be an adjustment in the degree of easing, with the real interest rate still at a very low level'."

"The swaps market swiftly boosted odds of a 25bps BOJ hike on December 19 from 60% to 80%. We called for a BOJ hike back in October given stronger fiscal support, firm activity, and persistent inflation pressures. The timing was off, but those drivers remain intact and points to a December rate rise. If so, USD/JPY will likely adjust lower towards the level implied by US-Japan bond yield spreads."