Japanese Yen Hits One-Month High on Tokyo CPI Boosting BOJ Rate Hike Expectations

The Japanese yen surged to its highest level against the dollar in over a month on Friday, propelled by robust inflation data from Tokyo, reinforcing expectations of a December rate hike by the Bank of Japan.

 

In response, the USD/JPY pair plummeted by about 1% to 150.01 yen, marking its lowest point since late October. This decline followed stronger-than-anticipated consumer price index figures for November, acting as a precursor to nationwide inflation and supporting projections of a persistently hawkish stance by the BOJ in the upcoming months.

 

According to a recent Reuters poll, traders are bracing for a 25 basis point rate increase by the BOJ in December. Governor Kazuo Ueda reiterated the central bank's intention to raise interest rates further, citing a positive feedback loop of increased wages and stable inflation.

 

Commenting on the situation, ING analysts noted, "The rise in inflation, coupled with robust monthly economic performance, heightens the likelihood of another BOJ rate hike in December."

 

An anticipated December hike would mark the BOJ's third in 2024, signaling a shift from almost a decade of negative rates to a tightening policy. This shift has been primarily driven by a notable rise in wages this year, bolstering consumer spending and inflation.

 

UBS analysts predict further increases in Japanese wages in 2025, potentially paving the way for additional rate hikes by the BOJ. The central bank is also expected to intervene to support the yen, which faced pressure from a considerably stronger dollar throughout November.