Market documentarians were back to peddling the BoJ “structural shift” narrative on Monday in the wake of remarks from Kazuo Ueda who, in a hotly-anticipated (among the handful of people who get excited about such things) address to business leaders in Nagoya, delivered what one bank characterized as de facto “advance notice” of a December rate hike.

“[W]e will consider the pros and cons of raising the policy rate and make decisions as appropriate,” Ueda said. He was careful, as usual, to emphasize that policy settings in Japan remain accommodative. The BoJ’s not applying restriction, they’re merely easing less.

Importantly, Ueda appeared to suggest that Sanae Takaichi’s on board with a hike later this month, or at least not inclined to crucify the bank should they go through with it. Takaichi’s a foreign policy hawk but when it comes to monetary policy, she’s an avowed dove, consistent with the easing bias of her legendary mentor, Shinzo Abe.

Ueda described recent meetings with Takaichi as “frank” and “good.” That he went there — i.e., into the qualitative specifics of his communications with the new prime minister — added to the market’s conviction that a hike’s imminent, although I’d note that his comments on the BoJ’s rapport with the government came during a press conference.

Takaichi’s walking a fine line. Abe spent the better part of a decade trying to engineer inflation, to little success. It took twin disruptions — the pandemic and the war in Ukraine — to ignite the kindling, and as it turns out, Japanese are like everyone else in the world: They don’t like inflation.

Cost concerns plagued the short tenure of Takaichi’s immediate predecessor Shigeru Ishiba. Although Takaichi enjoys more political cachet with the populist right by virtue of her intense nationalism, she’s still an establishment figure and thus can scarcely afford to be blamed for any worsening of inflation pressures that’ve angered large swathes of the electorate.

Rate hikes can help to the extent they limit FX pass-through inflation from a weak yen, but they also work at cross purposes with fiscal policies aimed at putting more money in people’s pockets which, in turn, risk pushing up inflation through the demand channel.

If that all sounds maddeningly circular to you, you’re not wrong: Some in Japan have determined that the best way to fight inflation is with more spending and while that can work in the very short-term, it can be counterproductive over the medium and longer run.

Relatedly, even as Ueda’s obviously correct to characterize Japanese monetary policy as still accommodative, the act of making it less so with rate hikes is nevertheless directionally inconsistent with Takaichi’s new spending measures. The track record for regimes in which fiscal and monetary policy are working in opposite directions isn’t great.

Anyway, the market-implied odds of a BoJ rate hike this month were 75% or so on Monday.

As the figure shows, short-end yields were the highest since the financial crisis north of — gasp! — 1%.

Coming full circle to the “structural shift” narrative mentioned here at the outset, Ueda has to be cautious not to stumble the institution he leads into another August 2024 moment.

The grizzled veterans among you (i.e., those who’ve been investing for more than 18 months) will recall that the BoJ’s July 2024 rate hike (the second in four months) was the straw that broke the camel’s back for the yen carry trade. The yen was the most popular funder on Earth and all of a sudden, the central bank was hiking hawkishly. You couldn’t fund in yen for free anymore. There was indeed a very real sense in which that shift marked an adjustment to the global market infrastructure. That’s the “structural shift” narrative.

Of course, this isn’t July/August of 2024. This is December of 2025. By now, traders have hopefully acclimated to the new reality and the BoJ’s apprised of the potential for chaos in the event policy communications are viewed as insufficiently refined.

Incidentally, if you pull up an intraday chart of Bitcoin and plot it with USDJPY on Monday, the reality of Bitcoin as a risk asset is plain as day. The haven rallied (i.e., USDJPY fell) and Bitcoin sold off.