With President Trump’s inauguration coming up, this is likely to be a day when we are likely to see a move to close positions once and for all, as we do not know what will pop up.

In a speech in Kanagawa Prefecture, Bank of Japan Deputy Governor Himino stated that “I think the main scenario from the information we have so far is that the wage hike in 2013 will be strong, comparable to that of 2012,” and stated that “we will discuss and decide whether to raise interest rates” at this month’s meeting. While this does not mean that a rate hike has been confirmed, it is quite a step in the right direction and seems to indicate that the Bank is getting closer to a rate hike. In the interest rate market, the assumption of a rate hike this month has risen to nearly 60%. The yield on 10-year JGBs has also risen to 1.26%, indicating that the market is aware of a rate hike. At the same time, however, there are still cautious players who are not taking it at face value, as Mr. Himino himself is quite hawkish. If we focus on longer-term interest rates, we should assume that a rate hike in Japan is quite close, and this BoJ policy meeting is likely to attract more attention than usual.

Governor Ueda, addressing a gathering of the Japan Association of Regional Banks, said, “We would like to discuss and decide whether or not to raise interest rates” at the next meeting. Although the content of the statement was in line with Deputy Governor Himino’s comments the previous day, the market reacted by strengthening the yen as the possibility of a January rate hike was further increased. The Nikkei also reported that a majority of the deliberative committee members were likely to vote in favor of a rate hike on January 24th, unless there are major news reports from the US. A rate hike was almost certain. However, if the market cannot clearly break below 155 yen even though the rate hike has been confirmed, it would seem that the yen’s return to strength this time was too short-lived.

The U.S. CPI was a dollar-selling reaction as the core CPI was confirmed to be difficult to beat versus the previous year. The Eurodollar and especially the Pound Dollar were bought back as positions were built up, but the end result was a decline in the Cross Yen due to speculation of a BOJ rate hike.
The week will start with President Trump’s inauguration on the week’s short day, so we would like to keep our positions close to flat if possible. It would be better to join the market on Tuesday or later.