The Bank of Japan may raise interest rates again in december.

The Japanese yen remains weak despite a slight strengthening earlier in the week. Concerns persist among Bank of Japan policymakers about wage growth and signs of continued economic slowdown, which could lead to opposition against raising interest rates in December. However, Kazuo Ueda, Governor of the Bank of Japan (BoJ), remains determined and has signaled the possibility of a rate hike soon.

Tokyo's core consumer price index (CPI), a key indicator of national inflation trends, rose 2.2% year-on-year in November, up from 1.8% in October. This increase surpassed market expectations of 2.1% and marked the highest inflation rate in three months. Governor Ueda has proposed the likelihood of another interest rate hike, potentially as early as next month, while expressing concerns over the yen's continued depreciation. Market estimates now place the probability of a 25-basis-point rate hike in December at approximately 60%, up from around 50% the previous week.

Japan's trade deficit narrowed to ¥461.25 billion in October from ¥702.86 billion in the same month a year earlier, as exports grew at a faster pace than imports. Imports rose 0.4% year-on-year to ¥9,887.91 billion, rebounding from a 1.8% increase in September. Chemical imports grew by 5.6%, led by medical products, while machinery imports rose 12.5%, primarily driven by computer equipment.

Exports from Japan increased by 3.1% year-on-year to a three-month high of ¥9,426.67 billion in October, surpassing market expectations of 2.2%. Sales of other goods rose by over 27.3%, driven by a sharp increase in scientific equipment exports. Machinery exports grew 2.2%, led by a 42.6% surge in semiconductor machinery. Additionally, electrical equipment exports increased 0.4%, while automobile and vehicle exports contracted by over 3%. Most exports were directed to China, Hong Kong, and Taiwan.

Japan’s services PMI improved to 50.5 in November, buoyed by five consecutive months of growth in new orders. International demand also showed continued improvement after months of decline. However, employment levels reached a four-month high amid significant cost pressures, prompting businesses to pass these costs onto customers. This resulted in the fastest recorded price increases.

In contrast, Japan's manufacturing PMI fell to 49.0 in November, indicating a contraction in manufacturing activity for the fifth consecutive month. Output declined sharply amid continued reductions in new orders, both domestically and internationally. Companies were compelled to reduce hiring, and input costs remained steady. However, the rapid depreciation of the yen has significantly raised the cost of imported goods.