Investing.com-- The Japanese yen firmed on Thursday, reaching its strongest level in nearly two months as Bank of Japan hawk Naoiki Tamura talked up the central bank’s plans for higher rates.
The yen’s USD/JPY pair- which gauges the amount of yen needed to buy one dollar- sank 0.5% to 151.85 yen- its lowest level since early-December.
Strength in the yen came chiefly after Tamura, who is a member of the BOJ’s rate-setting board- said that the central bank was likely to hike its benchmark rates to 1% from 0.5% in the second half of 2025.
Speaking at an event in Nagano, Tamura suggested that the BOJ should raise rates gradually in the short-term to determine the appropriate level of rates for the economy. He said that 1% was likely to be the neutral level for rates.
Tamura also expressed concerns that sharp increases in rice prices and inflation exceeding 2% for nearly three years could hurt private consumption, necessitating higher rates.
Tamura has been a hawkish dissenter at the BOJ’s recent policy decisions, and had called for a rate hike in December. Still, the central bank hiked rates by 25 basis points to 0.5% in late-January.
The BOJ cited a virtuous cycle of higher wages and private consumption driving up inflation in the coming months, giving it more headroom to raise interest rates.
Focus in the coming month is squarely on springtime wage negotiations between Japanese labor unions and major employers, which are expected to yield a bumper wage hike for a second consecutive year.
Recent wage data for December showed steady growth in private incomes, giving further credence to the BOJ’s expectations of a virtuous cycle.
Tamura said that expects springtime wage negotiations to result in wage increases aligned with the BOJ’s 2% annual target.