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The Japanese Yen Reached Its Strongest Level Against The U.S. Dollar In Over A Month. This Was Driven By Inflation Data From Tokyo That Surpassed Expectations, Pushing Traders To Bet On A Bank Of Japan (BOJ) Rate Hike In December.

Tokyo CPI Data Boosts Japanese Yen Expectations

Tokyo's Consumer Price Index (CPI) For November Showed Stronger-than-expected Inflation. This Index Is Considered A Bellwether For Nationwide Inflation. As A Result, Expectations Of Steady Inflation Led Many To Believe The BOJ Would Remain Hawkish In The Coming Months.

The USD/JPY Pair Dropped About 1%, Reaching A Low Of 150.01 Yen. This Drop Reflects Market Sentiment Fueled By The Stronger-than-expected CPI Data And The Anticipated Rate Hike By The BOJ.

BOJ Rate Hike In December To Support Japanese Yen

A Reuters Poll Indicated That Traders Are Pricing In A 25-basis-point Rate Hike From The BOJ In December. This Would Be The Third Rate Hike By The BOJ In 2024, Following Its Decision To End Nearly A Decade Of Negative Rates And Begin Tightening Policy.

Wages And Inflation Driving The BOJ’s Actions

The Rise In Wages In Japan Has Been Crucial For Driving Both Inflation And Economic Growth. This, In Turn, Has Supported The BOJ's Decision To Tighten Monetary Policy. Analysts Suggest That Inflationary Pressures Will Continue As Long As Wages Keep Rising.

What To Expect In 2025

UBS Analysts Predict That Japanese Wages Will Continue To Rise In 2025. This Could Lead To Further Rate Hikes From The BOJ To Manage Inflation. Additionally, The Yen May Receive Support From The BOJ’s Tightening Measures.

The Tokyo CPI Data Has Increased The Odds Of A Rate Hike In December. As Wages Rise And Inflation Persists, The Bank Of Japan Is Likely To Maintain A Hawkish Stance, Which Could Further Support The Yen.

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