As market expectations for the Bank of Japan's impending rate hike heat up, the yen-dollar exchange rate hit its highest level since December on Thursday, outperforming other major currencies. The yen rose 0.7% against the dollar, reaching 150.46 yen, the highest point since December 9. Meanwhile, Japanese government bond yields also climbed, with the 10-year benchmark yield hitting its highest level since 2009.
The expectation of a rate hike has strengthened, with overnight index swaps (OIS) data showing investors now see an 83% chance of the Bank of Japan raising rates at its July meeting, compared to just 70% earlier this month. As the anticipated rate hike draws closer, the current market consensus is that a hike in September is almost certain.
Bank of Japan committee member Takata Soichi said on Wednesday that the central bank will continue to consider gradual rate hikes, noting that the trend in Japanese government bond yields aligns with market expectations for the economy. Recent data also supports a rate increase, with Japan's GDP growth exceeding expectations and nominal wages marking the biggest rise in nearly 30 years, further proving the momentum of economic recovery.
Yujiro Goto, chief foreign exchange strategist at Nomura Securities, noted in a report, "It is very significant that Takata Soichi did not express any concerns about the rising yields." This statement creates room for further increases in Japanese government bond yields and the yen.
Additionally, the market anticipates that Japan's CPI data to be released on Friday will be stronger than expected, potentially further driving yen appreciation. An Asian foreign exchange trader indicated that short-term funds are positioning for robust inflation data. Economists surveyed by the media expect the CPI to rise by a mean of 4%, the highest level since January 2023.
Shoki Omori, chief global strategist at Mizuho Securities in Tokyo, stated, "If Japan's CPI rise exceeds expectations, the dollar-yen could break below the 150 threshold, possibly even before the data release."
