Ueda's Speech in Focus as Markets Assess October Rate Hike Odds

Bank of Japan Governor Kazuo Ueda is set to address the National Securities Convention in Tokyo on Tuesday, marking his first major public remarks since the central bank's September rate hike to 1.25%. The speech comes amid market speculation about whether the BoJ will implement a second consecutive rate increase in October. Current market pricing suggests an October hike is less likely, with estimates placing the odds at roughly one in four.

Earlier, the July meeting minutes revealed a hawkish tilt among board members, with some advocating for further tightening to prevent inflation from overshooting the 2% target. However, the September meeting's summary of opinions included a contrasting view that there was no need to rush. Additionally, a government representative reportedly urged restraint on further hikes, adding to the mixed messaging.

Deputy Governor Shinichi Uchida provided some insights on Monday, describing AI as a positive demand shock that adds upward pressure on activity and prices. He noted that AI has eased financial conditions by lifting share prices, though heavy bond issuance by AI-related companies has pushed long-term yields higher. Uchida also warned of potential correction risks if expected profits do not materialize. The USD/JPY briefly dipped to around 157.5 after his remarks before recovering toward 158.

The focus now shifts to Ueda's speech, where traders will be watching for any signals about a potential October rate hike. Key questions include whether Ueda will describe current financial conditions as still accommodative, how he will characterize yen weakness and its impact on underlying inflation, and whether he will indicate the need for more time to assess the September hike's effects. Japanese wage and household spending data, also due on Tuesday, will provide additional context.