Yen expands gains to two-week highs on Japanese rates outlook

The Japanese yen rose in Asian trading on Tuesday against a basket of major and secondary currencies, extending its gains for a second consecutive session against the US dollar and hitting a two-week high, supported by negative pressure on the US currency ahead of the release of US monthly jobs data.

The yen’s advance is also supported by increased demand ahead of the Bank of Japan’s meeting on Thursday and Friday, as markets widely expect a 25-basis-point rate hike, marking the second step of monetary tightening this year.

Price Overview

Japanese yen price today: The US dollar fell 0.35% against the yen to ¥154.70, the lowest level since December 5, from an opening level of ¥155.21, after recording an intraday high of ¥155.24.

The yen ended Monday’s session up 0.4% against the dollar, marking its third gain in the past four days, amid continued unwinding of yen carry trades.

US Dollar

The US dollar index fell about 0.1% on Tuesday, extending losses for a second straight session and approaching a two-month low, reflecting continued weakness in the US currency against a basket of global currencies.

The dollar has remained under pressure since last week’s Federal Reserve meeting, after the outcome was less hawkish than markets had expected, reviving bets on the continuation of the US rate-cut cycle through 2026.

To reassess these expectations, traders are awaiting later today the release of the long-delayed US jobs report for October, which had been postponed due to the federal government shutdown.

Bank of Japan

The Bank of Japan meets on Thursday and Friday to discuss appropriate monetary policy for the world’s fourth-largest economy, amid strong expectations of a 25-basis-point rate hike to a range of 0.75%, the highest level since 2008 during the global financial crisis.

Markets are closely watching Governor Kazuo Ueda’s comments for guidance on the policy outlook for 2026, as expectations grow that the Japanese government may pursue further fiscal expansion, adding complexity to the policy backdrop facing the central bank.

Japanese Interest Rates

Following recent inflation and wage data in Japan, market pricing for a 25-basis-point rate hike at this week’s meeting has stabilized above 90%.

Bank of Japan Governor Kazuo Ueda recently struck a more optimistic tone on the Japanese economy, saying the central bank will assess the pros and cons of raising interest rates at its upcoming policy meeting.

Three government officials told Reuters that the Bank of Japan is likely to raise interest rates this December.

Views and Analysis

Analysts at Société Générale said they expect the Bank of Japan to raise interest rates to 1% by July next year, while also anticipating a rate hike when the policy decision is announced on Friday.

They added that once rates reach 1%, the Bank of Japan will enter uncharted territory, making a cautious tightening pace more likely, with gradual 25-basis-point increases and close monitoring of the impact on economic growth and price levels.

Société Générale analysts also expect intervals of no less than nine months to a full year between successive rate hikes.