The Japanese yen rose on Friday after a summary of the Bank of Japan’s December policy meeting showed some policymakers gaining confidence in an imminent rate increase. The Bank of Japan held interest rates steady at 0.25% at this month’s meeting, citing the need for more data on next year’s wage momentum and clarity on the incoming US administration’s economic policies.
The Bank of Japan also cut its monthly bond purchases by another 410 billion yen per month, lowering the total to about 4.5 trillion yen per month from January. The Japanese currency has weakened in recent weeks as US Treasury yields rise despite the Federal Reserve cutting rates by 100 basis points since September.
Traders are pricing in the likelihood that the US central bank will make fewer rate cuts next year as inflation remains elevated. Analysts say the policies of the new Donald Trump administration next year are also expected to boost growth and inflation, making traders wary of betting against the greenback.
Despite this, some see the Japanese currency staging a comeback against the dollar eventually, with Treasury yields likely to decline. Societe Generale analyst Kit Juckes said in a recent report that the prospect of a Bank of Japan rate hike in the first quarter of next year and a drift lower in Treasury yields in H2 2025 suggest the fair value is peaking around now and will be in the mid-130s by the end of next year.
Traders are also on watch for any potential intervention by Japanese officials to shore up the currency if it continues to weaken, as they have done multiple times this year. Japan Finance Minister Katsunobu Kato reiterated concerns over a sliding yen on Friday, repeating his warning to take action against excessive currency moves.
The dollar was last down 0.15% at 157.76 Japanese yen, while the euro gained 0.07% to $1.0429. The British pound strengthened 0.25% to $1.2556. The South Korean won dropped to a 16-year low of 1,486.7 per dollar after parliament impeached acting President Han Duck-soo. Cryptocurrency bitcoin rose 0.72% to $96,378.