The Nikkei newspaper hinted overnight in their Thursday edition that the BOJ will still be discussing the possibility of a rate hike at their upcoming meeting. The article asserts that the BOJ will stick to its "economic expansion scenario" at the upcoming meeting.
The speculation was seen pushing ten-year JGB yields to 1.76% overnight and two-month highs. The recent rise in US rates, the unexpected BOE rate hike and the weak JPY will help make the decision easier for the BOJ, muting the impact on JPY reaction. And, there is a view growing in the market that a 25 bp will not have much impact, since a rate hike is priced into JGBs and into three-month Libor prices.
The report says that the BOJ board members will be focusing on the "Economy Watchers" data and the Machinery orders data, due Jan 15th, as factors impacting their decision. USD/JPY remains well bid, underpinned by fresh carry trade interest and the rise in US yields today, on the back of the better-than-expected US jobless claims. USD/JPY is at 120.52 with 121.05 the next topside target.
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