Is the wave of Yen appreciation coming? The Bank of Japan's December rate hike probability surpasses 80%

**Market expectations shift dramatically, hawkish signals released**

The recent trend of USD/JPY has become more volatile. On December 1st, the exchange rate fell to 154.66, hitting a two-week low. Behind this adjustment is the latest statement from Bank of Japan Governor Kazuo Ueda—he will comprehensively assess the pros and cons of a December rate hike and make a decision based on the situation. This wording is interpreted by the market as the strongest hawkish signal to date.

Overnight index swap data immediately reflected a shift in market expectations. The probability of the Bank of Japan raising interest rates in December surged to over 80%, a figure particularly significant in the context of Japan’s Golden Week and the end-of-year policy environment.

**Multiple investment banks offer different judgments**

Regarding the implications of Ueda’s speech, economists at Société Générale admitted that it almost amounts to a prelude to a December rate hike. Analysts at Barclays and JPMorgan Chase have directly adjusted their expectations, moving the planned rate hike from January next year to December.

However, not all institutions are so confident. Goldman Sachs adopts a more cautious stance, believing that the Bank of Japan may still be waiting for more comprehensive corporate wage data to support a rate increase, making a January hike still a high-probability event.

**Carry trade movements in the opposite direction**

Contrasting the hawkish shift of the Bank of Japan is the market’s near 90% bet on a Fed rate cut in December. The interest rate differential between the US and Japan continues to narrow, triggering a wave of stop-loss liquidations in key carry trades.

Carry trades involve borrowing low-interest currencies (like the yen) to buy high-yield assets (such as USD assets). As the US-Japan interest rate gap shrinks, the profit margins of such trades are significantly compressed, prompting investors to reduce their positions. Coin Bureau analyst Nic Puckrin pointed out that the rapid appreciation of the yen is reshaping the market landscape, and the unwinding of arbitrage trades has resumed.

**Future outlook for exchange rate trends**

Analyst Lee Hardman from Mitsubishi UFJ Financial Group believes that as expectations for a Bank of Japan rate hike heat up, the yen’s appreciation momentum may continue. His forecast suggests that by early 2026, the USD/JPY exchange rate could fall to around 150.

This indicates that there is still room for yen appreciation against the dollar. For investors focusing on yen asset allocation and USD/JPY exchange rate trends, upcoming policy announcements and economic data will be key indicators to watch.