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Investing.com-- The Japanese yen hit its strongest level in five months on Friday as increased safe haven demand and speculation over interest rate hikes by the Bank of Japan boosted the currency.
The yen’s USD/JPY pair- which gauges the amount of yen required to buy one dollar- fell 0.3% to 147.64 yen, earlier hitting a low of 147.31 yen. The figure was the pair’s lowest level since early-October.
The yen was also set for strong gains this week, as the currency benefited from increased safe haven buying, especially amid heightened uncertainty over U.S. trade policies. U.S. President Donald Trump imposed tariffs on Canada and Mexico this week, only to postpone them almost immediately after.
Trump also warned that more tariffs were on tap in early-April, especially his long-touted plans for reciprocal tariffs on U.S. trading partners.
Hawkish signals from the BOJ were also a key support for the yen, after Deputy Governor Shinichi Uchida said that the central bank did intend to raise interest rates further. Still, Uchida ruled out a hike at the BOJ’s upcoming meeting in March.
The central bank had raised interest rates by 25 basis points to 0.5% in January, as robust economic growth, above-target inflation and expectations of more wage hikes this year provided more confidence in higher rates.
Reuters reported on Friday that chances of a May rate hike were growing, especially amid expectations of sticky inflation. The May meeting will also take place after Japan’s springtime wage negotiations between unions and major employers, which are expected to yield another year of bumper hikes.
Consumer price index inflation hit a two-year high of about 4% in January, and was now at twice the BOJ’s annual target range. Core inflation also hit a 19-month high.
The central bank had kicked off a monetary tightening cycle last year amid sticky inflation and upbeat private consumption, especially after bumper wage hikes in March 2024.
Japanese 10-year government bond yields soared to near 16-year highs of over 1.5% this week, reflecting increased expectations for rate hikes. This in turn boosted the yen, which also benefited from a weakening dollar.