Bank of Japan Governor Kazuo Ueda has given a clear signal that an interest rate hike is possible in December.

Haruhiko Kuroda, Governor of the Bank of Japan, has issued the clearest indication so far, stating that its policy board may raise the benchmark interest rate this month. He emphasized that any rate hike is merely an adjustment to the degree of easing policy, and the authorities will make appropriate decisions on whether to advance policy changes.

On Monday, Ueda delivered a speech to local business leaders in Nagoya, central Japan, stating that the central bank will "weigh the pros and cons of raising the policy rate by examining the domestic and international economy, inflation, and financial market conditions, and make timely decisions."

According to overnight index swap data, traders expect about a 64% chance that the central bank will raise rates at the next policy meeting ending on December 19. The probability of action before January next year rises to 90%.

Before Ueda's statement, policy board members had successively sent signals supporting a rate hike — besides two dissenting members calling for a rate hike in the last two meetings, Junko Koeda clearly stated that interest rate normalization should be advanced (without specifying a timeline), and Kazuyuki Masu said in an interview with Nikkei that the time for a rate hike is approaching. Even the dovish member Asahi Noguchi pointed out last week that the risk of policy adjustment being too late is rising.

After Ueda's speech, the yen slightly strengthened against the US dollar. Before his speech, as expectations of a Bank of Japan rate hike increased, the two-year Japanese government bond yield rose to its highest level since 2008.