Nov 29 2024: The Japanese yen surged to its strongest level against the U.S. dollar in over a month on Friday, driven by higher-than-expected inflation data from Tokyo that bolstered expectations for a December rate hike by the Bank of Japan (BOJ).
The USD/JPY pair dropped nearly 1% to 150.01, its lowest since late October, following robust consumer price index data from Tokyo for November. This data, often viewed as an indicator of nationwide inflation trends, reinforced the outlook for continued BOJ tightening.
Market sentiment has been leaning towards a 25 basis point rate hike in December, with BOJ Governor Kazuo Ueda recently affirming the central bank’s commitment to raising rates amid rising wages and steady inflation. Analysts from ING noted that the acceleration in inflation, combined with a solid recovery in monthly activity, strengthens the likelihood of another rate hike.
A potential December hike would mark the BOJ’s third rate increase in 2024, reflecting its shift from a decade of negative interest rates. The BOJ’s policy tightening has been driven by higher wages, which have supported both inflation and private spending.
UBS analysts forecast further wage growth in Japan for 2025, which could prompt additional rate hikes. The BOJ may also act to stabilize the yen, which was pressured by the dollar’s strength throughout November.
Japanese stock markets faced declines amid concerns over higher rates, with the Nikkei 225 dropping 0.7% and the TOPIX falling 0.6%.
