06:15 AM EST, 01/10/2025 (MT Newswires) -- The yen (JPY) rebounded modestly on Thursday, but remains close to the lows around 160.00 hit last year after market participants lost conviction in December over the Bank of Japan's appetite to raise rates, said Mitsubishi UFG.

However, the decision to hike in January by 25bps is still seen as a possibility and is only a little less than a 50% probability now, wrote the bank in a note to clients. The big issue for the markets' increasing conviction at this juncture is that the uncertainty in the markets is high ahead of United States President-elect Donald Trump's inauguration on Jan. 20.

However, the wage data released Thursday was certainly consistent with what the BoJ states is required in order to justify another rate hike, pointed out MUFG. Total cash earnings jumped from a downwardly revised 2.2% --from 2.6% -- to 3.0% while under a same sample basis to remove distortions the growth rate picked from 2.8% to 3.5% while scheduled full-time pay under the same sample basis dropped marginally from 2.9% to 2.8%.

This is further evidence of the continued stability of wage growth at levels consistent with achieving the price stability goal and as such could be used to justify another rate hike by the BoJ, stated the bank. But the market reaction Thursday, and indeed into Friday, has been relatively muted given the simple fact that there has been no rhetoric from BoJ officials to suggest that they wish to guide the market toward a hike on Jan. 24.

Investors also got the release of the quarterly Summary of the Regional Branch Managers' views which perhaps was more significant than the data as it provides a more forward-looking picture of wage growth, added MUFG. The BoJ report highlighted "the view that continuous wage increases are necessary is spreading across companies in a wide range of sectors and of various sizes."

This will be something that would give the Monetary Policy Committee more confidence on the outlook for wage growth.

So a rate hike on Jan. 24 is still certainly a possibility but MUFG's sense is that some form of more direct explicit guidance would likely be forthcoming and without that expectations are unlikely to shift much.

It's feasible that after Trump's inauguration but before the meeting some guidance via the media could be the catalyst but that window is small and will be highly uncertain, added the bank. In that sense March looks more plausible given by then there will certainly be more available information on 'shunto' wage negotiations than at the meeting this month.

As a consequence, USD/JPY is likely to remain well supported in anticipation of yields in the U.S. remaining elevated on higher inflation risks, according to MUFG. Friday's U.S. jobs report could also play into BoJ deliberations given a stronger-than-expected report could see USD/JPY threaten the 160 level again.