Remarks from senior BOJ officials along with Japanese data that points to persistent price pressure and strong wage growth have helped boost market confidence that a rate shift is in the offing with traders pricing in an 80% chance of a hike next week.
The yen has climbed 1.5% against the dollar this week, its strongest weekly run since late November. It was last a tad weaker at 155.34 per dollar on Friday but still close to the one-month high of 155.10 it touched on Thursday.
“Inflation and wage data does suggest that the BOJ could hike rates further, and commentary is also signalling one,” said Charu Chanana, chief investment strategist at Saxo.
“However, yen strength could be fleeting especially if (BOJ Governor Kazuo) Ueda surprises again with a dovish commentary despite a rate hike.”
The euro was steady at $1.03035 and sterling was little changed at $1.22355 in early trading. That left the dollar index, which measures the U.S. currency against six other units, at 108.94, inching away from a high of more than two years touched at the start of the week. The index is set for a 0.6% drop in the week, which would snap a six-week winning streak, after traders started pricing in the prospect of two rate cuts this year in the wake of an easing U.S. core inflation data on Wednesday. The Federal Reserve last month projected two rates in 2025. But data on Thursday showed U.S. retail sales increased in December, pointing to strong consumer demand and lending strength to the view that the Fed should be cautious in its approach to cutting rates this year.
Fed Governor Christopher Waller said on Thursday three or four rate cuts are still possible if economic data weakens further.
Markets are currently pricing in 41 basis points of cuts from the Fed this year, according to LSEG data – up from 37 basis points before Waller’s comments.
The benchmark Treasury 10-year yield was at 4.612% in Asian hours. It as dropped over 16 basis points this week, its weakest weekly performance in over a month.
China’s economy is also set to be a focus for markets on Friday, with gross domestic product (GDP) data set to be released. A Reuters poll predicts GDP grew 5.0% in October-December from a year earlier, quickening from the 4.6% pace in the third quarter.
China’s yuan has been hovering near 16-month lows in recent weeks as investors brace for U.S. tariffs and contend with record low local yields and slow economic recovery. The offshore yuan traded at 7.3456 per dollar.
Investors are also awaiting Trump’s inauguration speech on Monday to get a better sense of his policy steps. Policies on tariffs and taxes that he has outlined so far are expected to boost growth but also be inflationary.
