Bank of Japan Governor Kazuo Ueda sends clear signal: a rate hike is possible in December.

Bank of Japan Governor Kazuo Ueda gave his clearest hint to date that the policy board may raise the benchmark interest rate this month. He emphasized that any rate hike would only be an adjustment to the degree of easing, and the central bank would make an appropriate decision on whether to proceed with the policy change.

Ueda made the remarks on Monday in Nagoya, central Japan, addressing local business leaders. He stated that the central bank would "weigh the pros and cons of raising the policy rate and make a timely decision by examining domestic and international economic conditions, inflation, and financial market conditions."

According to overnight index swap data, traders expect a 64% probability of a rate hike by the end of the next policy meeting on December 19th. The probability of action by January next year has risen to 90%.

Ueda's statement comes after a series of signals from policy board members supporting a rate hike—in addition to two dissenting members calling for a rate hike in the last two meetings, Junko Koeda explicitly stated that interest rate normalization should proceed (without specifying a timeframe), and Kazuyuki Masu told the Nikkei that the time for a rate hike was approaching. Even dovish member Asahi Noguchi pointed out last week that the risk of delaying policy adjustments is rising.

Following Ueda's speech, the yen strengthened slightly against the dollar. Prior to his speech, the yield on two-year Japanese government bonds had risen to its highest level since 2008 as expectations of a Bank of Japan interest rate hike intensified.