The Japanese yen rose in Asian markets on Monday at the start of trading for the week. This rise came after the Japanese currency recorded strong gains against a group of major and minor currencies. The yen continued to move in the positive territory for the third consecutive period against the US dollar. This performance reflects the growing optimism about raising Japanese interest rates for the third time this year during the upcoming meeting of the Bank of Japan in December. This expectation contributes to strengthening confidence in the yen and increasing demand for it.
Japanese economic data showed growth exceeding expectations during the third quarter of this year. This economic growth highlights the strength of the Japanese economy, which increases the likelihood that the Bank of Japan will take steps to normalize monetary policy in the coming period. This superior economic performance reflects Japan’s resilience in the face of global economic challenges.
Factors Influencing the Rise of the Japanese Yen
One of the factors supporting the rise of the yen is the current decline in the yields of the US ten-year bonds. This decline in yields is considered an important factor in moving the currency markets. At the same time, the increasing probability of a 25 basis point US interest rate cut next week contributes to strengthening the yen. Investors believe that these factors will enhance the attractiveness of the yen compared to the US dollar, which will push the Japanese currency higher in the markets.
As markets await the US Federal Reserve’s decision on interest rates in the coming days, interest in monetary policy expectations is increasing. These expectations are one of the main factors that affect the yen’s price trends.
Price view on the Japanese yen
The US dollar was slightly lower against the Japanese yen today, down 0.2% to ¥149.69, compared to the opening price of ¥149.96. The yen also hit a high of ¥150.05, reflecting volatile market movements. These changes come at a sensitive time, as markets await the upcoming monetary policy decisions from the Bank of Japan.
Despite these daily fluctuations, the Japanese yen gained slightly on Friday by 0.1% against the US dollar, achieving its second daily gain in a row. This rise was mainly due to the decline in US yields, which made the yen gain relative strength against the greenback.
Japanese Economy: Strong Results in the Third Quarter
Japan’s gross domestic product grew by 0.3% in the third quarter of this year, data released by the Japanese Ministry of Trade showed on Monday, better than expectations of a 0.2% growth. This growth also exceeded the previous reading of 0.2%. Compared to the second quarter of the year, which saw a growth of 0.5%, it can be said that the Japanese economy continues to achieve positive results despite global challenges.
These figures indicate that the Japanese economy is still able to withstand global pressures, and reflect the resilience of domestic sectors. The improvement in these data may also boost confidence in the Japanese economy in the medium term.
Future trends for interest rates in Japan
Bank of Japan Governor Kazuo Ueda said last week that the next interest rate hikes may be “close,” based on the fact that economic data is moving in the right direction. This statement reflects a possible change in the policy of the Bank of Japan, which has followed a negative interest rate policy for a long time. If economic data continues to improve, the market may see a gradual increase in interest rates in coming period.
The decision is expected in December
For his part, the hawkish member of the Bank of Japan, “Toyoaki Nakamura”, did not rule out raising interest rates at the upcoming December meeting. He indicated that the timing would depend on the upcoming economic data. This suggests that the Bank of Japan may make a decisive decision at the December meeting based on the latest economic indicators, which increases anticipation in the markets.
A source at the Japanese central bank confirmed to Reuters that the interest rate decision at the December meeting will be “direct” and will not be prepared in advance, unlike any other meeting in the coming months. This reflects the conservative approach that the Bank of Japan follows in making its decisions based on ongoing economic developments.
The markets will focus on the December interest rate decision, especially with the improvement in economic data in Japan. Some analysts point out that any interest rate hike could strengthen the yen.
However, the Japanese yen faces challenges from some other global trends. Any change in economic policies in Japan or in major economies such as the United States could affect the strength of the currency. However, given the current situation, it can be said that the yen will remain in a strong position compared to the US dollar if economic factors continue to support the currency.
Forecast for the Japanese Yen
Based on the current economic outlook, the Japanese yen is likely to remain in an upward trend. If the Bank of Japan takes a step towards normalizing monetary policy in December, this could contribute to increasing the attractiveness of the yen. In contrast, the movement of US yields is expected to influence currency trends in the short term.
Inflation in Tokyo: Pressure on the Bank of Japan accelerates
Recent data showed that inflation levels in Tokyo have accelerated, reflecting the mounting inflationary pressures on monetary policymakers at the Bank of Japan. This increase in inflation may push the Bank of Japan to take bolder steps regarding interest policy. In conjunction with this data, the probability of raising interest rates in Japan has increased, with the probability of a quarter-point increase in the rate at the December 18-19 meeting rising from 55% to 60%.
The impact of inflation on monetary policy in Japan
The high inflation in Tokyo reflects the general rise in the cost of living, which increases pressure on the Bank of Japan to act faster towards raising interest rates. This pressure comes at a sensitive time for the Japanese economy, as any move towards raising interest rates could affect economic growth in the country, which is still in the recovery phase after the Corona pandemic.
On the other hand, other economic data continues to show the strength of the Japanese economy, giving the Bank of Japan more ability to make policy decisions in the future. Despite these inflationary pressures.
Impact of US yields on global markets
In another context, yields on US 10-year Treasury bonds fell by 0.35% on Monday, continuing their losses for the fourth consecutive session. Yields approached their lowest levels in six weeks at 4.126%. This decline reflects impact of US labor market data that were worse than expected, indicating a decline in pressure on the US labor market.
Awaiting US inflation data
In light of these developments, investors are awaiting the release of key US inflation data for November this week. This data will provide an important indicator of extent to which inflationary pressures in the United States persist, which will contribute significantly to re-pricing monetary policy expectations by the Federal Reserve.
