BoJ Governor Kazuo Ueda said this morning that the negative interest rate policy has become more challenging.

The yen exchange rate soared on Thursday (December 7). Several Bank of Japan (BoJ) officials signaled an imminent end to the negative interest rate policy, resulting in the yen rallying against various other majors. USD/JPY, GBP/JPY, and EUR/JPY all fell by more than 1.5% each and are still dropping as we enter New York session trading.

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BoJ Governor Kazuo Ueda said the negative interest rate policy "has become increasingly challenging since the end of (this) year and into next year". BoJ Deputy Governor Ryozo Himino yesterday also outlined the various benefits that could be gained by ending the negative interest rate policy.

Himino said, "There will be a sufficient probability of achieving positive results from (the) exit (from negative interest rates), as many households and companies will benefit from a virtuous cycle between wages and prices".

Their remarks immediately spiked Japan's interest rate expectations, while catapulting the Yen exchange rate. Market participants began to speculate on the chances of a BoJ rate hike this month—although the chances are relatively small—, or at least in the first half of next year.

"The fact that the Governor and Deputy Governor have begun thinking and talking in public about an exit from NIRP has led the market to become nervous about a potential hawkish shift by the BoJ at its meeting on 19 December," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

"Comments from Bank of Japan officials have suddenly seen investors ramp up the chances that the BoJ could bring an end to their negative interest rate policy," says Henry Allen, a strategist at Deutsche Bank.

Allen added that the impact of the two BoJ officials' statements was quite broad. Market participants are pricing in about a 40% chance of a BoJ rate hike this month. Investors rushed to sell Japanese government bonds, pushing up the yield to +11.5 basis points. The 10Y US Treasury yield was also lifted to +6.8 basis points.