Japanese Yen Hits Two-Month High as BOJ’s Tamura Signals Rate Hikes

The Japanese yen strengthened on Thursday, reaching a nearly two-month high as Bank of Japan (BOJ) board member Naoki Tamura signaled potential interest rate hikes. The USD/JPY pair dropped 0.5% to 151.85, marking its lowest level since early December.

Tamura, a known policy hawk, stated at an event in Nagano that the BOJ could raise interest rates from 0.5% to 1% in the second half of 2025. He emphasized the need for gradual rate hikes to determine the optimal level for Japan’s economy, considering 1% a neutral rate. His remarks followed concerns over persistent inflation exceeding 2% for nearly three years and rising rice prices, which could dampen private consumption.

The BOJ recently increased interest rates by 25 basis points to 0.5% in January, citing higher wages and consumer spending as key drivers of inflation. The central bank anticipates further rate hikes as it monitors economic conditions.

Market attention now turns to Japan’s spring wage negotiations between labor unions and major employers. A second consecutive year of substantial wage increases is expected, reinforcing the BOJ’s outlook on sustainable inflation. December wage data showed steady income growth, adding support to the bank’s policy stance.

Tamura expressed confidence that upcoming wage negotiations would align with the BOJ’s 2% inflation target, further justifying gradual rate adjustments.

The yen’s rally underscores investor expectations of monetary tightening, which could support the currency in the coming months. Traders remain focused on economic indicators and BOJ policy signals to gauge future yen movements.