As the Bank of Japan's policy meeting approaches, traders are betting on a rate hike becoming more certain.

In just a few days, traders in the forward market have significantly increased their bets, believing that the Bank of Japan will almost certainly raise interest rates at next week's policy meeting. Overnight index swaps on Friday showed a 99% probability of the Bank of Japan raising interest rates at the meeting on January 23-24, higher than the 71% on Wednesday. Bank of Japan Deputy Governor Masayoshi Amamiya clearly stated in a speech to business leaders in Yokohama on Tuesday that the Bank's policy committee will discuss the possibility of raising rates next week. Bank of Japan Governor Haruhiko Kuroda said on Wednesday that they will consider raising rates at the next meeting, hinting at increased confidence in wage growth, strengthening expectations of a rate hike and boosting the yen. Furthermore, there are reports that Bank of Japan officials believe that the likelihood of a rate hike is high unless there are too many surprises from President Trump's inauguration. The two-year Japanese government bond yield, sensitive to monetary policy expectations, climbed to its highest level since 2008 on Wednesday. In early trading on Friday, the USD/JPY exchange rate fell to 154.98 yen per dollar, lower than earlier in the week at 158 yen per dollar. Yukio Ishiuki, senior foreign exchange strategist at Daiwa Securities, said, "It is almost certain now that the Bank of Japan will raise rates next week. The final obstacle is Trump's policies, but I don't think the market will become extremely volatile because of his inauguration speech." Japanese Finance Minister Katsunobu Kato stated on Friday that he expects the Bank of Japan to appropriately implement monetary policy to achieve its price stability target. He added that the specific details of the policy should be left to the Bank of Japan. In a speech, Kato said, "As wages and prices rise, interest rates change, this is of course the natural state of the economy. In this way, resource allocation is optimized." According to the latest survey, nearly three-quarters of the Bank of Japan watchers predict that the Bank will raise interest rates next week. Of the 53 economists surveyed, approximately 74% predict that the Bank of Japan will raise rates at the end of the next meeting, higher than the 52% in the previous survey. IG Asia Pte Market strategist Jun Rong Yeap said, "Japanese policymakers have taken a more candid and transparent approach in policy guidance, possibly to reduce unnecessary market volatility that has occurred in the past due to communication errors. Policymakers' remarks are increasingly laying the groundwork for the interest rate change next week."