(Bloomberg) — The yen hit its strongest level against the dollar since December, beating all major currencies’ performance on Thursday amid growing speculation the Bank of Japan will hike rates sooner rather than later.
Japan’s currency climbed as much as 0.7% to 150.46 against the dollar, a level it hasn’t touched since Dec. 9. Government bond yields are also on the rise, with the 10-year benchmark hitting its highest level since 2009. Overnight index swaps are pricing in an 83% chance of a rate hike by the central bank’s July meeting, compared with about 70% odds at the start of this month, with a hike now seen as certain by September.
BOJ Board Member Hajime Takata said on Wednesday that it’s important to continue considering gradual rate hikes, while also noting that Japan’s bond yields are moving in line with the market’s view of the economy. Japan’s recent data has also supported the BOJ’s case for raising rates, with gross domestic product outperforming forecasts and nominal wages jumping by the fastest pace in nearly three decades.
READ: BOJ’s Hawkish Member Calls for Further Rate Hike Consideration
“It’s significant that Takata didn’t express any concern about rising yields,” said Yujiro Goto, head of FX strategy at Nomura Securities Co., in a note. That leaves room for further rises in JGB yields and the yen, he said.
The yen’s appreciation also comes before the nation’s CPI data on Friday, where a stronger-than-expected print may push traders to buy the Japanese currency. Fast money funds are positioning for a strong Japanese CPI print, according to an Asia-based FX trader. Economists surveyed by Bloomberg expect a median of 4% for the CPI data, a figure it hasn’t seen since January 2023.
“Should the national CPI exceed expectations, there is a significant possibility that dollar-yen will fall below 150, and it may even breach the level before the data is announced,” said Shoki Omori, chief global desk strategist at Mizuho Securities Co. in Tokyo. “This potential movement is supported by the underlying trend of selling pressure on the dollar, alongside increased geopolitical risks that are bolstering yen purchasing.”
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