Yen Rises as BOJ Rate Hike Speculation Grows
The yen hit its strongest level against the dollar since December, outperforming all major currencies on Thursday amid growing speculation that the Bank of Japan will raise interest rates sooner rather than later.
The Japanese currency rose as much as 1% to 149.95 to the dollar, a level it hasn’t touched since Dec. 9. Yields on government bonds also rose, with the benchmark 10-year hitting its highest since 2009. Overnight index swaps priced in an 85% chance of a rate hike at the central bank’s July meeting, compared with about a 70% chance earlier this month, with a hike now considered certain in September.
Central bank Governor Kazuo Ueda said Thursday that he did not discuss rising yields in a meeting with Japanese Prime Minister Shigeru Ishiba. BOJ Board member Hajime Takata also said Wednesday that it was important to continue considering gradual rate hikes, while also noting that Japanese bond yields were moving in line with the market’s view of the economy.
“It’s significant that Takata didn’t express concerns about rising yields,” Yujiro Goto, chief FX strategist at Nomura Securities Co., said in a note. That leaves room for further gains in JGB yields and the yen, he said.
Recent Japanese data also bolstered the BOJ’s case for a rate hike, with gross domestic product beating estimates and nominal wages surging at the fastest pace in nearly three decades. The move was also “supported by the underlying trend of selling pressure on the dollar, along with rising geopolitical risks that are driving yen buying,” said Shoki Omori, chief global strategist at Mizuho Securities Co. in Tokyo.
Source: Bloomberg
