The Japanese yen gained against a basket of major currencies in Asian trading on Friday, continuing its upward trend for the fourth consecutive session against the U.S. dollar. The yen approached a four-week high and is poised to record weekly gains, bolstered by recent Japanese wage data and the anticipation of a third interest rate hike this year by the Bank of Japan (BOJ).
Currency Movements
The USD/JPY pair fell by 0.4% today, trading at 142.89 yen per dollar, with the session’s high reaching 143.48 yen. On Thursday, the yen appreciated by 0.2% against the greenback, reaching a four-week high of 142.84 yen following positive economic data and optimistic comments from a BOJ official.
Weekly Performance
So far this week, the yen has appreciated by 2.25% against the dollar, positioning itself for a second weekly gain in three weeks. This rise is attributed to renewed pressure on yen carry trades.
Japanese Wage Data
Recent government figures revealed that Japan’s total cash monthly income increased by 3.6% year-on-year in July, surpassing the anticipated 3% rise. Real wages, adjusted for inflation, saw a 0.4% year-on-year increase in July, following a 1.1% rise in June. Higher wages are expected to prompt the BOJ to consider raising interest rates to manage inflation.
BOJ Comments
BOJ member Hajimi Takata suggested that the central bank should continue increasing interest rates if it can confirm that companies will sustain their spending and wage increases.
Market Expectations
Traders now assign a 90% probability to a rate hike by the BOJ in December. The yen’s strength is further supported by the decline in U.S. 10-year Treasury yields, which fell by 0.4% on Friday, reaching a four-week low of 3.716%. This decline follows a series of disappointing U.S. labor data, which has intensified expectations for more substantial rate cuts by the Federal Reserve.
U.S. Monetary Policy Outlook
According to the Fedwatch tool, there is a 43% chance of a 0.5% interest rate cut by the Fed in September, with a 57% probability of a 0.25% cut. Investors are awaiting the U.S. payrolls report later today for further insights into future U.S. monetary policy.
The narrowing yield gap between Japan and the U.S. has made Japanese bonds more attractive, contributing to the yen’s recent gains.
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