BOJ deputy’s speech sparks speculation

Market eyes clues on negative interest rates and next steps

By Ahmed Azzam | @3zzamous | 7 February 2024

Market close
  • Traders speculate about the end of negative interest rates.

  • Annual wage negotiations play a crucial role in BOJ’s hawkish shift.

Yen options suggest traders’ main focus is the Bank of Japan’s April policy meeting, yet they may have to readjust their exposure much sooner.

BOJ Deputy Governor Shinichi Uchida will give a speech and press conference Thursday, and speculation by interbank traders is rising that he will provide hints about the end of negative interest rates and the central bank’s next steps.

Wage hikes and inflation

Japan’s annual wage negotiations are a key component for a BOJ hawkish shift and anecdotal evidence indicates some companies plan to conduct wage hikes exceeding last year’s historic gains and topping the inflation rate.

The Japanese currency leads G-10 losses so far this year as the market pares back wagers on Federal Reserve policy easing and as the BOJ has yet to send a definite signal on the timing of moving away from NIRP era.


The yen’s volatility term structure and skew show a lower conviction for a rally versus the greenback in the front-end compared to January-end, while demand for low-delta exposure up to the one-month tenor matches the year-to-date average.

Overnight volatility in USD/JPY trades around 10%, for a breakeven of 75 yen pips, which may be underestimating risks surrounding Uchida’s comments. Given positioning, hawkish guidance may see a quick move toward support around the 146 handle while options-related offers at 150 could be tested this week should BOJ retain a patient stance.