Japanese yen strengthens as BoJ rate hikes may continue
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The Japanese yen strengthened to around 154 per dollar on Friday, setting the stage for the currency to close both the week and the month with notable gains. This rise in the yen was fueled by growing expectations that the Bank of Japan (BOJ) will continue to raise interest rates throughout the year.
Japanese yen strengthens as BoJ rate hikes may continue
On Thursday, BOJ Deputy Governor Ryozo Himino reinforced this view, stating that the central bank plans to persist with rate hikes if the Japanese economy and inflation align with the bank's expectations.
Data released on Friday added further support to the BOJ's hawkish outlook. Tokyo’s core inflation surged to a robust 2.5% in January, marking an 11-month high, signaling that price pressures are continuing to build in the economy. This uptick in inflation is seen as a key indicator for the BOJ to tighten monetary policy. Additionally, economic data painted a positive picture: retail sales exceeded expectations, industrial production made a strong rebound, and the jobless rate unexpectedly declined, all suggesting that Japan’s economic recovery is gaining momentum.
Yen hit by international developments
Despite these encouraging domestic indicators, the currency markets are still closely watching international developments. Traders are awaiting further clarity on US President Donald Trump's trade policies, as he reaffirmed plans to impose 25% tariffs on Mexico and Canada, which could affect broader global trade relations. Additionally, a 10% tariff on Chinese imports remains under consideration, keeping markets on edge. The potential for renewed trade tensions adds an extra layer of uncertainty, making the yen an attractive haven for investors seeking stability amid geopolitical risks.
As both domestic economic strength and global trade tensions continue to evolve, the yen’s upward momentum is likely to persist in the short term, with market participants keenly monitoring the BOJ's next moves and any shifts in global trade policy.
