Investing.com — The Japanese yen hit its strongest level against the dollar in nearly a month on Friday, as better-than-expected inflation data released in Tokyo strengthened expectations for the Bank of Japan to raise interest rates in December.
The exchange rate of the yen, which is required to buy one dollar, fell by about 1% to 150.01 yen, the lowest since late October.
The pair's decline came as it was stronger than expected in November from Tokyo.
The figure acts as a bellwether for national inflation and is factored into expectations that stabilizing inflation will keep the Bank of Japan's hawkish stance in the coming months.
Traders in a recent Reuters poll said they expect the Bank of Japan to raise interest rates by 25 basis points in December. Bank of Japan Governor Kazuo Ueda recently reiterated his plans for further interest rate hikes, citing the “virtuous cycle'' of rising wages and stable inflation.
“Accelerating inflation and a solid recovery in monthly economic activity raise the possibility that the Bank of Japan will raise interest rates again in December,” ING analysts said in a note.
December's rate hike will be the BOJ's third rate hike in 2024, as the central bank ended nearly a decade of negative interest rates and began tightening policy. The bank's move was largely due to a sharp rise in wages this year, which supported consumer spending and inflation.
Analysts at UBS said in a recent note that they expect Japanese wages to rise further in 2025, potentially foreshadowing further interest rate hikes by the Bank of Japan. The central bank is also expected to move to support the yen, which suffered a significant dollar appreciation until November.
Japanese stocks fell on the prospect of higher interest rates. It fell 0.7% on Friday, compared with a decline of 0.6%.
