According to official data from Japan, Tokyo's Consumer Price Index (CPI) in November rose by 2.6% year-on-year, significantly higher than October's 1.8%, exceeding market expectations. The core CPI, which excludes volatile fresh food prices, also increased to 2.2% year-on-year, above the expected 2.0% and the previous value of 1.8%, marking the first rise in three months. This data release has led to market expectations that the Bank of Japan will raise interest rates further in December, causing the yen to sharply appreciate against the dollar.
In the early Asian trading session, the US dollar depreciated against the yen (USD/JPY) to below the 150 level, the lowest point since late October, currently reported at 150.12, down about 1% from the early day. So far this week, the US dollar has depreciated by about 3% against the yen. If this trend continues, the yen may see its largest weekly gain in nearly four months.
Bank of Japan Governor Kazuo Ueda has stressed earlier that if economic data continues to support the prospect of improved inflation and if the inflation rate stabilizes above 2%, the bank will continue with rate hikes. As a result, the market is currently betting a 60% probability on a rate hike by the Bank of Japan in December. ING analysts noted that accelerating inflation and a robust recovery in monthly economic activity increase the likelihood of further rate hikes by the Bank of Japan.
However, the yen's weakness is also influenced by other factors, especially the downward pressure on US bond yields and market fluctuations due to the US Thanksgiving holiday closure. Since US President-elect Trump nominated "hawkish fiscal official" Besondert as the new Treasury Secretary, it is expected that the new Secretary may alleviate deficit concerns, leading to a decline in US bond yields.
Overall, with the improving inflation situation in Japan and rising expectations of a rate hike, yen exchange rates may experience further volatility, particularly as the Bank of Japan's policy direction becomes clearer.
