Yen Climbs on Rate Hike Hopes as Markets Eye US Jobs Data

Image Credit: Reuters

 

The yen surged to a nine-week high as investors bet on further interest rate hikes in Japan this year, while the U.S. dollar and other major currencies remained steady ahead of the release of U.S. payroll data. After a turbulent week marked by fluctuating headlines on U.S. tariff policies, traders took a cautious stance, awaiting job market figures while monitoring geopolitical developments. 

 

The U.S. labor market has shown resilience, with economists surveyed by Reuters predicting an unchanged unemployment rate of 4.1% in January and an addition of 170,000 jobs.  Meanwhile, the Trump administration's shifting trade policies kept markets on edge—Trump paused tariff plans for Mexico and Canada but enforced an additional 10% tariff on Chinese imports.  

 

Federal Reserve officials are factoring in these uncertainties while assessing monetary policy direction. Market projections currently indicate a 43% probability of a quarter-point rate cut in July, with around 44 basis points of total cuts expected in 2025.  

 

The euro remained largely stable at $1.0382, while the British pound dipped 0.1% to $1.2426 following the Bank of England’s forecast of higher inflation and weaker growth. Two BoE officials even suggested the need for a larger rate cut.  

 

However, analysts caution that interpreting January’s employment data may be challenging. Commerzbank analysts highlighted that recent U.S. Census Bureau adjustments to population growth could significantly impact market reactions, potentially leading to major revisions in employment data.  

 

Dallas Fed President Lorie Logan signaled a preference for maintaining current interest rates for an extended period, even if inflation nears the Fed’s 2% target, as long as the labor market remains strong.  The U.S. dollar index, which measures the greenback against major currencies including the yen and pound, held steady at 107.69 after reaching 109.88 earlier in the week due to tariff-related concerns.

 

Meanwhile, the yen gained momentum on expectations of continued Bank of Japan rate hikes. The dollar slipped 0.25% to 151.09 yen, briefly dropping below 151 for the first time since December 10.  The yen’s upward trend, fueled by strong wage data earlier in the week, positioned it for its best weekly performance against the dollar since late November.

 

Further boosting expectations was a statement from BOJ board member Naoki Tamura, one of the central bank’s more hawkish voices, who suggested interest rates should rise to at least 1% in the latter half of fiscal 2025.  

 

Barclays strategists Shinichiro Kadota and Lhamsuren Sharavdemberel foresee further downside for the dollar against the yen in the near term, with attention shifting to Japan’s upcoming wage negotiations.  “We anticipate another solid 5% wage hike this year while inflation remains above the 2% target, keeping the BOJ on a hawkish path,” they noted.

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.