Sources: A December rate hike by the Bank of Japan is almost a certainty, and the government will not interfere.

According to a Reuters report, three Japanese government sources said the Bank of Japan (BOJ) is likely to raise interest rates in December, and the government is expected to tolerate the decision. The sources said the BOJ appears prepared to raise its policy rate from 0.5% to 0.75%, a signal echoed by Governor Kazuo Ueda in his speech on Monday. This would be the first rate hike since January. One source said, “If the BOJ wants to raise rates this month, let them decide. That’s the government’s position.” He added that a rate hike this month is almost certain. Ueda said on Monday that the BOJ would consider the “pros and cons” of a rate hike this month, indicating a high probability of a rate hike at its December 18-19 meeting. These comments have led the market to price in an 80% probability of a December rate hike, although some market participants are watching how the dovish government of Prime Minister Sanae Takaichi might react. Market focus may shift to the BOJ’s wording regarding the extent to which it will ultimately raise rates, a topic on which Ueda has remained ambiguous.