Japanese yen surges to highest level in month

Japanese yen surged to its highest level in a month, and Japanese bank stocks rose following upbeat wage data and remarks from a Bank of Japan (BOJ) board member suggesting a potential interest rate hike this month, Bloomberg reported on Thursday.

Japanese government bonds declined further, indicating weak investor demand ahead of the anticipated BOJ policy change. Two-year notes also dropped, with yields hitting their highest level since 2011.

Overnight indexed swaps suggest a 79 per cent chance of a rate increase in March, significantly up from 26 per cent at the end of the previous month.

Recent data showed accelerated wage growth in Japan, raising concerns about inflation. Some government officials favor a near-term rate hike, while a central bank board member noted the economy’s progress toward the 2 per cent inflation target.

These developments pushed the yen up by 0.7 per cent against the dollar, and the 10-year bond yield rose by 2.5 basis points to 0.735 per cent. Despite hedge funds increasing short positions on the yen, overall sentiment favored yen buying due to low volatility and a potential unwinding of short positions.

Expectations of higher interest rates boosted Japanese bank stocks, with the Topix banks index rising by as much as 2.5 per cent. This contrasted with the Nikkei 225, which fell by up to 1.1 per cent.