Yen Strengthens on Rising Inflation and Rate Hike Expectations in Japan

Japan’s core inflation rose to 3.5% in April, up from 3.2% in March and slightly above market expectations of 3.4%, according to a Wall Street Journal poll

The data strengthens speculation that the Bank of Japan (BOJ) may consider another interest rate hike later this year — a move that would set it apart from other G-10 central banks, many of which are preparing to cut rates.

MUFG Bank strategist Derek Halpenny noted that this divergence in monetary policy supports the yen, especially as market participants increasingly expect the Federal Reserve to start cutting rates later this year.

In response, the yen gained ground against the dollar, which dropped 0.5% to 143.332 yen, reflecting shifting interest rate expectations in both Japan and the United States.

This dynamic underscores the unique position of the BOJ as Japan grapples with rising inflation after years of deflationary pressures, and it puts renewed focus on future policy decisions from both the BOJ and the Fed.