Growing inflationary pressures on the Bank of Japan

Sources: Bank of Japan to raise interest rates in December

The Japanese yen rose in Asian trading on Monday against a basket of major and minor currencies, resuming gains that had paused on Friday against the US dollar, and approaching its highest level in three weeks again, after strong data in Japan on average wages, which recorded its biggest jump in the last three months in October.

Over the past week, more hawkish comments from Bank of Japan Governor Kazuo Ueda have opened the door to a near-term normalization of monetary policy, coinciding with reports from government sources to Reuters that the central bank is likely to raise interest rates this December.

Price overview

Today's Japanese Yen exchange rate: The dollar fell against the yen by about 0.3% to (154.90¥), from today's opening price of (155.34¥), and recorded a high of (155.38¥).

The yen ended Friday's trading down 0.2% against the dollar, its first loss in three days, due to profit-taking and corrective trading, after earlier hitting a three-week high of 154.34 yen.

The Japanese yen gained 0.5% against the US dollar last week, its second consecutive weekly gain and its biggest weekly gain since late September, amid growing hopes that the interest rate gap between Japan and the United States is narrowing.

Japanese wages

Japan's Ministry of Labor said on Monday that total monthly cash earnings and a separate set of full-time wage figures rose 2.6% year-on-year in October, the fastest pace since last July, exceeding market expectations of a 2.2% increase. Wages rose 2.1% after upward revisions from a 1.9% increase in September.

Wage increases in Japan could pave the way for further price hikes and accelerated inflation in the coming period. Undoubtedly, growing inflationary pressures on monetary policymakers at the Bank of Japan increase the likelihood of a Japanese interest rate hike.

Japanese interest rate

Following the above data, the pricing of the probability of the Bank of Japan raising interest rates by a quarter of a percentage point at its December meeting rose from 65% to 70%. In order to reprice those probabilities, investors are awaiting the release of more data on inflation, unemployment and wage levels in Japan, in addition to following comments from some Bank of Japan members.

Bank of Japan Governor Kazuo Ueda last week offered a more optimistic outlook on the Japanese economy, saying the central bank would weigh the pros and cons of raising interest rates at its next monetary policy meeting this December.

Three government officials told Reuters that the Bank of Japan will likely raise interest rates this December.