As the expectation grows that the Bank of Japan (BOJ) will raise its benchmark interest rate this month, fears of unwinding yen carry trades are spreading again in the market. There is concern that another ‘Black Monday’ could occur, similar to last year when Japan’s interest rate hike coincided with signs of a U.S. economic slowdown, causing global financial markets to shake. The market is closely watching the BOJ amid policy uncertainty due to the inauguration of U.S. President-elect Donald Trump.Interest Rate Hike After 6 Months?According to the Nihon Keizai Shimbun on the 19th, more than half of the nine policy board members who decide the BOJ’s benchmark interest rate are expected to favor an additional rate hike at the monetary policy meeting scheduled for the 23rd-24th. The Nihon Keizai Shimbun observed that a final decision will be made after watching the remarks of President-elect Trump, who will be inaugurated on the 20th, and the subsequent market reactions.If the BOJ opts for a rate hike, the benchmark interest rate will become 0.5% per annum. This would be the third hike since the decision to raise the rate to 0.25% per annum at the meeting last July, and since the negative interest rate was lifted in March last year. The 0.5% level is the first since February 2007 to October 2008.The BOJ’s policy board, which decides on monetary policy, consists of nine members, including Governor Kazuo Ueda, Deputy Governor Shinichi Uchida, and Deputy Governor Ryozo Himino. Decisions are made by majority vote, and if five or more members agree, it is passed. The Nihon Keizai Shimbun predicted that although some policy board members are cautious, there is a high possibility that a rate hike will be decided.According to Reuters, until last month, experts were divided on whether the BOJ would raise the rate to 0.5% in January or March. However, since the beginning of this month, the opinion favoring a January hike has become dominant. Governor Kazuo Ueda, who is also a policy board member, stated on the 15th and 16th that they would discuss and decide whether to implement a rate hike at the meeting, and Deputy Governor Ryozo Himino made similar remarks on the 14th.Takeshi Yamaguchi, chief economist at Morgan Stanley MUFG Securities, expressed in a report on the 16th that a January rate hike is almost a done deal. The Overnight Index Swap (OIS) market sees an 80% probability of an additional rate hike this month.Will Yen Carry Unwinding Repeat?With the prospect of an imminent rate hike, concerns have grown in the market about the unwinding of ‘yen carry trades.’ The interest rate differential between the U.S. and Japan acts as an incentive for yen carry trades, where the low-interest yen is borrowed or sold to invest in high-interest currencies or high-yield assets. If the U.S.-Japan interest rate differential narrows, the possibility of yen carry unwinding increases.At the end of July last year, the BOJ’s interest rate hike and the deterioration of U.
Dom. Gen 19th, 2025
