EBC Markets Briefing | Yen on the front foot this week

The yen was poised for its strongest weekly performance in over a month as expectations grow that the BOJ will raise rates next week, putting the dollar on the back foot ahead of Donald Trump's return to the White House.

Deputy Governor Ryozo Himino said on Tuesday wage growth will likely remain strong this year. A day later, Ueda echoed the optimism in line with the conviction that Japan was progressing towards durably hitting its inflation target.

The central bank will raise interest rates again at one of the two meetings this quarter to 0.50%, an overwhelming majority of economists surveyed by Reuters said, with most leaning toward a January move.

With increased prospects of sustained wage gains, the only remaining hurdle for monetary tightening next week would be the risk of Trump roiling financial markets with some protectionist speeches.

Japan’s 40-year government bond yield reached its highest since inception amid a global debt selloff and expectations of gradual rate hikes. But the yield spread between Japan and the US remains substantial.

Data showed US retail sales increased 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.

The yen strengthened towards the resistance at 50 SMA. If the level is smashed through, further gains are likely to bring the currency to 150 per dollar.

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