The final important event of the year! If the interest rate hike in December is postponed, is "Trump risk" unavoidable and will the depreciation of the yen accelerate? [BOJ Meeting Preview]

The last important event for the domestic market this year is,The Bank of Japan's monetary policy decision meeting on December 18-19will take place. The decision will be announced around noon on the 19th, with Governor Kuroda holding a press conference in the afternoon.
The focus is onwhether to raise the policy interest rate for the third time this year or postpone it to the new year.Considering the theory of "weakening yen = rising stocks", if there is an interest rate hike in December, it may lead to a "strong yen -> falling stocks" scenario, which may seem negative at first glance. However, looking ahead to 2025, it may be perceived positively to digest the inevitable "bad news" within the year.The main scenario is a rate hike postponement in December.It seems to be the case.If the rate hike in December is postponed, multiple risks are expected to arise.It is also anticipated that several risks will surface.

If the rate hike is delayed to December"Hike Risk"Year-end
Around the time of the meeting in October, held before and after the previous one, the market's main scenario was the rate hike in December. At the press conference after the October meeting, Governor Ueda, regarding the rate hike decision, mentioned that the expression 'having some time' used at the September meeting would 'no longer be used in the future,' giving the impression that the rate hike timing was approaching. Furthermore, in an interview with the Nikkei on November 30th, he stated about the timing of the rate hike, "It can be said that it is getting closer in the sense that economic data is moving as anticipated," and it was also perceived as "preparation for a rate hike in December."
However, the expectation of a rate hike in December rapidly retreated afterwards. On December 9, Bloomberg mentioned that Bank of Japan Deputy Governor Higashino Ryozo would hold an unprecedented meeting before the Bank's monetary policy decision meeting in January 2025, which could potentially raise expectations for a January rate hike in the market. Additionally, on the 11th,The Bank of Japan stated that "there is no need to rush for an additional rate hike" and that "no significant costs would be incurred even if the rate hike is postponed after January."It was also reported that against the backdrop of the expected 0.25% rate cut at the U.S. FOMC meeting to be held on the 17th and 18th, concerns about yen depreciation have eased. The exchange rate, although fluctuating towards a weaker yen after speculations of a postponed rate hike in December surfaced, is currently hovering around 1 US dollar to 153 yen.
According to a survey of 52 economists conducted by Bloomberg from the 5th to the 10th,52% expected the rate hike in January, while 44% expected it in December (Bloomberg as of the 12th).Based on the movement of the interest rate swap market as of the 13th, the rate hike probability calculated by Toho Research and others for the January meeting is around 15%, and for February it is around 56%.In the economist survey conducted by Bloomberg from the 5th to the 10th, the expected rate hike timing was 52% for January and 44% for December. The rate hike probability calculated by Toho Research and others based on the movement of the interest rate swap market as of the 13th was around 15% for the December meeting and 56% for January.(As of the 13th, the Nikkei newspaper).
If the rate hike in December is postponed, the 'rate hike risk' that will affect the stock market will carry over to 2025.

The biggest 'rate hike risk' lies in the lack of 'predictability' rather than the rate hike itself.
August 24, 2024The 'Reiwa Black Monday' demonstrated that the biggest 'risk' of a rate hike is not the impact of the hike itself, but rather how much the market was able to anticipate the possibility of a rate hike.Reached an all-time high last week.
The current macro indicators are in line with the 'ONTRAK (as assumed)' by the Bank of Japan, so even if the Bank of Japan were to decide on a rate hike in December, there is sufficient data available to satisfy the market. Therefore, conversely,If a rate hike is not implemented in December, there is a possibility that the scenario of 'strong macro indicators → rate hike' may be disrupted.In that case, after January, it is also anticipated that predicting rate hikes based on macro indicators will become difficult.
In recent macro indicators, the November Tokyo metropolitan area consumer price index (preliminary) excluding fresh food announced by the Ministry of Internal Affairs and Communications on November 29th showed that the core CPI rose by 2.2% compared to the same month last year, recovering to the 2% range for the first time in two months. Also, the corporate goods price index (preliminary) for November announced by the Bank of Japan on December 11th showed a 3.7% increase year-on-year, extending the growth for the third month in a row and reaching the highest growth rate since the 3.6% increase in July 23.
The wage trends that Governor Ueda places the most emphasis on showed that according to the monthly labor survey for October released by the Ministry of Health, Labour, and Welfare on December 6th, real wages increased by 0.0% compared to the same month last year, breaking out of negative growth for the first time in three months. Nominal wages increased by 2.6%.
Furthermore, in the Tankan survey (Short-Term Economic Survey of Enterprises in Japan) announced by the Bank of Japan on the 13th of December, the Business Conditions DI (Diffusion Index) improved slightly from 14 in the previous September to 15.

If the rate hike is delayed to December"Trump Risk"becomes inevitable.
While a January rate hike in 2025 is becoming the main scenario in the market, some also view a rate hike in January as difficult.
The January meeting is scheduled for the 23rd to the 24th, but January 20th, the day 3 days before the event, falls on the presidential inauguration day of Mr. Trump."Tariff Man" self-proclaimed.Mr. Trump has warned that he will "become a dictator on his first day in office."And has indicated an intention to impose an additional tariff of 25% on all imports from Mexico and Canada and 10% on imports from China. During the election period, he also claimed to impose tariffs of 10-20% on all imports and 60% from China.
In an interview with the Nikkei newspaper dated November 30th, Governor Ueda stated that the timing of the rate hike "can be said to be approaching," followed by "however, there is a big question mark about the future of U.S. economic policy. For now, I want to see what comes up. For example, there is talk of tariffs (from President-elect Trump), but we need to assess what will happen." Governor Ueda's statement can be interpreted as "raising rates will occur after confirmation of the impact of President Trump's economic policies." Unless President Trump's inauguration day ends in unexpectedly calm manner, the possibility of raising rates at the January meeting is low.In the event that a rate hike is not possible in January, the stock market..."Trump Risk"and the Bank of Japan"Hike Risk"To hold bothIt is assumed.

If the rate hike is postponedYen depreciation acceleration → "Exchange rate risk"Concerns about
If the rate hike is postponed in December, it will be important how the Bank of Japan explains the reason for the postponement. The observation that the possibility of a rate hike in December is low has been reported in the news, and the dollar-yen rate has already depreciated by about 5 yen. If the contents of the Bank of Japan meeting and the statements of Governor Ueda are perceived by the market as the Bank of Japan being reluctant to raise rates, or that the timing of the rate hike has been postponed, there is a possibility that the yen will accelerate depreciation at once.Potential for a sudden acceleration in yen depreciationThere is more.If the outlook for a slowdown in the pace of US interest rate cuts in the 25th year at the US FOMC strengthens, in order to prevent accelerated depreciation of the Yen, decisive comments on interest rate hikes are required.It is also anticipated that several risks will surface.
Rapid depreciation of the Yen is also an exchange rate risk, but rapid depreciation of the Yen may lead to greater exchange rate risks, driven by speculations about government interventions or interventions due to the sensitivity of high prices.Risk of sudden Yen strength reversal.Can be considered more significant exchange rate risk than that.The Black Monday of Reiwa became a major factor due to the rapid unwinding of overseas hedge funds' Yen carry trades caused by the rapid appreciation of the Yen.
In this case, not only the Trump administration's stance on exchange rates is unclear,Exchange Rate Riskcan be said to be increasing significantly.

Domestic political factors
The political influence on the Bank of Japan's interest rate hike decision may also be felt not only from the U.S. under the Trump administration, but also domestically.
The National Democratic Party, which supports the supplementary budget proposal and is in a "partial alliance" with the ruling coalition, is led by Yuichiro Tamaki, who has shown a cautious attitude towards interest rate hikes. Tamaki stated in an interview with Bloomberg on November 1 that "until the nominal wage growth rate of 2% plus price increase is stably achieved, we should continue with monetary easing and active fiscal policy,"and stated that interest rate hikes should not be made until March.In response to Reuters on the same day."There is no need to rush to raise interest rates in the next six months."And they are saying.
Even if the interest rate hike is postponed in December,If the market perceives that the Bank of Japan's decision is influenced by domestic political factors when the interest rate hike is postponed in December, the "forecast" for the next interest rate hike will become even more difficult I suppose.