Japanese yen strengthens on hawkish BoJ expectations

The Japanese yen climbed to around 150.7 per dollar on Friday, rebounding from a four-week low as strong inflation data and hawkish signals from the Bank of Japan (BOJ) reinforced expectations of tighter monetary policy.

Japanese yen strengthens on hawkish BoJ expectations

Fresh data showed that Tokyo’s core inflation—a key indicator of nationwide price trends—accelerated to 2.4% in March, up from 2.2% in February and defying forecasts of no change. The uptick in inflation suggests that underlying price pressures remain firm, further supporting the case for continued policy normalization by the BOJ. Meanwhile, a summary of opinions from the BOJ’s March meeting indicated that the central bank could consider further rate hikes if its economic and price outlook remains stable. Policymakers have increasingly emphasized that rising incomes and increased consumer spending are playing a crucial role in driving price gains, reinforcing the argument for tightening monetary policy after years of ultra-loose conditions. The recent shift in the BOJ’s stance has fueled speculation that Japan’s negative interest rate era may be firmly in the past, with gradual rate hikes potentially on the horizon.

Eyes on US tariffs impact

Elsewhere, investors are closely monitoring the potential impact of new US tariffs set to take effect next week, which could weigh on Japan’s key export sectors, particularly the auto industry. Japan, a major exporter of automobiles and high-tech components, could face headwinds if higher tariffs disrupt trade flows and weaken demand from the US. This has introduced additional volatility in currency markets, as traders assess how Japan’s economy might navigate the evolving trade landscape.

Yen remains under pressure

Despite the yen’s recovery, it remains under pressure due to persistent interest rate differentials between Japan and the US. The Federal Reserve’s higher-for-longer stance on interest rates has kept US Treasury yields elevated, making the dollar relatively more attractive compared to the yen. However, growing expectations of tighter BOJ policy and potential interventions from Japanese authorities to stabilize the currency could provide further support to the yen in the near term. Traders will be closely watching upcoming economic data and central bank commentary for more clues on the yen’s trajectory.