Japanese yen soars to 1-mth high as Tokyo CPI fuels BOJ rate hike bets

The Japanese yen hit its strongest level against the dollar in just over a month on Friday as higher-than-expected inflation data from Tokyo reinforced expectations for a December rate hike by the Bank of Japan.

The yen’s USD/JPY pair- which gauges the amount of yen needed to buy one dollar- sank around 1% to as low as 150.01 yen- its lowest level since late-October.

The drop in the pair came as consumer price index data from Tokyo read stronger than expected for November.

The reading acts as a bellwether for nationwide inflation, and factored into expectations that steady inflation will keep the BOJ hawkish in the coming months.

A recent Reuters poll showed traders are positioning for a 25 basis point rate hike by the BOJ in December. BOJ Governor Kazuo Ueda had also recently reiterated the central bank’s plans to hike interest rates further, citing a “virtuous cycle” of higher wages and steady inflation.

“The acceleration in inflation, combined with the solid recovery in monthly activity, increases the odds of another BoJ rate hike in December,” ING analysts wrote in a note.

A December hike will be the BOJ’s third hike in 2024, as the central bank ended nearly a decade of negative rates and began tightening policy. The bank’s moves were driven largely by a sharp pick-up in wages this year, which underpinned private spending and inflation.

UBS analysts said in a recent note that they expect Japanese wages to rise further in 2025, potentially heralding more rate hikes from the BOJ. The central bank is also expected to act in supporting the yen, which was battered by a substantially stronger dollar through November.

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Japanese stocks retreated on the prospect of high rates. The Nikkei 225 fell 0.7% on Friday, while the TOPIX shed 0.6%.