Yen increases sharply due to expectations of BoJ raising interest rates
The Japanese Yen (JPY) continues to increase in value and is currently at its highest level in many months against the US Dollar (USD). Although Japan's economic growth in the fourth quarter was adjusted down, investors still believe that the Bank of Japan (BoJ) will continue to raise interest rates due to rising inflation. In addition, the yield gap between Japan and other countries is narrowing, helping the Yen strengthen.
On the other hand, the market is also concerned about the negative impact of President Donald Trump's tax policies, making investors more cautious. This makes the Japanese Yen a safe choice. In addition, the USD is being sold off due to expectations that the US Federal Reserve (Fed) will cut interest rates many times this year, contributing to pushing USD/JPY lower.
New data shows that the Japanese economy grew by only 2.2% in the fourth quarter (lower than the forecast of 2.8%). However, the market still believes that the BoJ will keep interest rates unchanged at its March meeting, but could raise interest rates as early as May if inflation continues to be high and last year's strong salary increase remains strong.
Last week, BoJ Deputy Governor Shinichi Uchida suggested that the central bank will raise interest rates to closely monitor market conditions. This has sent the yield on the 10-year Japanese government bond to its highest level since 2008. Japan's Finance Minister also stressed that exchange rates should reflect the economic foundation, while the Finance Minister warned that higher interest rates could affect the economy.
Meanwhile, Japan is still negotiating with the US on tariffs, but it is uncertain whether it will be exempted from steel import tariffs. A 25% tax on steel and aluminum imports into the US will take effect on Wednesday, with other tariffs expected to come into effect in early April.
USD weakens due to expectations of Fed rate cut soon
The US Dollar is at its lowest level since November due to expectations that the Fed will soon start a rate cut cycle due to signs of weakening the US labor market. In addition, Mr. Trump's uncertain trade policies have also raised concerns about US economic growth, making the market believe that the Fed will continue to loosen monetary policy.
Investors are now waiting for the JOLTS report ( statistics on job opportunities in the US) for more information. However, the most important thing is the US inflation data released on Wednesday, as it will affect the trend of the USD and the USD/JPY pair in the coming time.
According to Lao Dong, at 12:00 on March 11, 2025, the Yen exchange rate is currently anchored around 147.328 JPY/USD.
