Ankur Banerjee
SINGAPORE (Reuters) – The yen was poised for its strongest weekly performance in more than a month on Friday as expectations rose that the Bank of Japan will raise rates next week, putting the greenback on the back burner ahead of Donald Trump’s return to the White House.
Remarks by BOJ officials along with Japanese data pointing to continued price pressures and strong wage growth helped boost market confidence that a rate change is in the offing, with traders estimating an 80% chance of a rate hike next week.
The yen is up 1.5% against the dollar this week, its strongest weekly run since late November. It was last a touch weaker at 155.40 per dollar on Friday, but still close to the one-month high of 155.10 it touched on Thursday.
“Inflation and wages data do suggest that the BOJ may raise rates further, and the comments also signal that,” said Charu Chanana, chief investment strategist at Sax.
“However, the yen’s strength could be fleeting, especially if (BOJ Governor Kazuo) Ueda surprises again with a more dovish comment despite the rate hike.”
was steady after data showed the world’s second-largest economy grew 5.4% in the fourth quarter, significantly beating analysts’ expectations and putting growth for the whole of 2024 at 5%, smack in the middle of Beijing’s target.
The spot yuan was marginally stronger at 7.3266 to the dollar, last trading at 7.3388. The yuan has hovered near a 16-month low in recent days, pressured by a strong dollar, threats of US tariffs and low yields on Chinese bonds.
China’s economy has struggled to recover since the post-pandemic recovery quickly faded, with a lingering property crisis, mounting local debt and weak consumer demand weighing heavily on activity.
“We don’t think the economy is on a strong footing despite the recent increase in stimulus, and more fiscal stimulus is likely to be deployed in the March 5 budget to cushion China’s economy from Trump’s policies,” said Alex Loo, FX and Macro (BCBA:) Strategist at TD Securities, Singapore.
The euro was steady at $1.03065 and sterling was little changed at $1.22425. That left the currency, which measures the U.S. currency against six other units, at 108.94, slightly off the two-year high reached earlier in the week.
The index was set for a 0.6% drop on the week, ending a six-week winning streak, as traders began to price in the prospect of two rate cuts this year following softening U.S. core inflation data on Wednesday. The Federal Reserve last month forecast two rates in 2025.
But data released on Thursday showed US retail sales rose in December, pointing to strong consumer demand and lending strength to the view that the Fed should be cautious in its approach to cutting rates this year.
Fed Governor Christopher Waller said on Thursday that three or four rate cuts are still possible if economic data weakens further.
Markets are currently pricing in 41 basis points of Fed tapering this year, according to LSEG data — up from 37 basis points before Waller’s comments.
The benchmark 10-year Treasury yield was 4.612% in Asian hours. It fell over 16 basis points this week, its weakest weekly performance in more than a month.
Investors are also looking ahead to Trump’s inauguration speech on Monday to get a better view of his policy moves. It is expected that the customs and tax policies he has presented so far will stimulate growth, but also be inflationary.
