Investing.com — The Japanese yen reached its strongest level against the dollar in just over a month on Friday, after higher-than-expected inflation data from Tokyo reinforced expectations for a rate hike by the Bank of Japan in December.
The yen pair – which measures the amount of yen needed to buy one dollar – fell about 1% to a low of 150.01 yen – the lowest level since late October.
The pair’s decline came from Tokyo stronger than expected for November.
This outcome serves as a gauge for national inflation and takes into account expectations that steady inflation will keep the BOJ aggressive in the coming months.
A recent Reuters poll showed traders 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 further raise interest rates, citing a “virtuous cycle” of higher wages and steady inflation.
“The acceleration of inflation, combined with the solid recovery in monthly activity, increases the likelihood of another rate hike by the BoJ in December,” ING analysts wrote in a note.
A December rate hike will be the BOJ’s third rate hike in 2024, as the central bank ended nearly a decade of negative interest rates and began tightening policy. The bank’s moves were largely driven by a sharp increase in wages this year, which supported 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 take action by supporting the yen, which suffered from a significantly stronger dollar through November.
Japanese stocks retreated on the prospect of high interest rates. On Friday, the stock fell 0.7%, while the stock fell 0.6%.
