The yen rallied in Asian trade on Friday against a basket of major rivals, resuming gains against the US dollar and about to hit a four-month high, with the Japanese currency on track for the largest monthly profit since July on strong investment demand.
As inflationary pressures mounted in Japan and bullish remarks from BOJ officials increased, the odds of a Bank of Japan interest rate hike in March rose as well.
The Japanese currency is also boosted by a steep drop in US 10-year treasury yields amid concerns in the markets after Donald Trump’s assertions on imposing tariffs on Mexico, Canada, and China.
The Price
The USD/JPY pair fell 0.5% today to 149.09 yen per dollar, with a session-high at 150.14.
The yen lost 0.5% on Thursday against the dollar on profit-taking away from a four-month high at 148.56.
Monthly Trades
The yen is up 3.9% so far in February against the dollar, heading for the second monthly profit in a row, and the largest since July 2024.
Japanese Rates
Recent inflation, services, and wages data from Japan showed increasing inflationary pressures on Bank of Japan policymakers.
Bank of Japan member Hajimi Takata asserted the importance of gradual interest rate hikes to contain the risks of inflation, which is approaching the 2% target.
BOJ Deputy Governor Shinichi Uchida said on Friday the bank will continue to reduce its purchases of government bonds despite the recent rise in yields, asserting its massive holdings of bonds still act as a massive stimulus to the economy.
Uchida reiterated the BOJ’s readiness to hike interest rates if economic developments and prices went as expected.
The odds of a BOJ interest rate hike in March now stand at 85%.
US Yields
US 10-year treasury yields fell 0.9% on Friday to an 11-week nadir at 4.222%, hurting the dollar’s standing.
It comes as US President Donald Trump announced plans to enforce 25% tariffs on Canada and Mexico next week and not April as he previously suggested. He also plans additional 10% tariffs on Chinese imports, and pledged to impose 25% tariffs on EU cars and products.
Now traders await important US personal consumption data for January, which could provide clues on the odds of a Fed rate cut in the first half of the year.
