Yen Hits Nine-Week High as Rate Hike Bets Rise; Dollar Awaits U.S. Jobs Data

The Japanese yen surged to a nine-week high as investors bet on further interest rate hikes by the Bank of Japan (BOJ), while the U.S. dollar held steady ahead of key payroll data. The dollar slid 0.25% to 151.09 yen, breaking below 151 for the first time since December 10. Market momentum was fueled by expectations of continued rate hikes, supported by recent wage data. BOJ board member Naoki Tamura reinforced hawkish sentiment, suggesting rates should reach at least 1% in fiscal 2025.

Analysts at Barclays see further downside for the dollar-yen pair, citing Japan's annual wage negotiations, which are expected to yield another solid 5% increase. Inflation remains above the BOJ’s 2% target, adding to pressure for higher rates.

Meanwhile, traders await U.S. nonfarm payroll data, with economists forecasting a steady 4.1% unemployment rate and 170,000 new jobs in January. However, revisions by the U.S. Census Bureau may complicate market reactions, analysts at Commerzbank warned.

Dallas Fed Bank President Lorie Logan signaled a prolonged rate hold, even if inflation nears the Fed’s 2% goal, provided the labor market stays strong. Market expectations suggest a 43% chance of a Fed rate cut in July, with around 44 basis points of total cuts priced in for 2025.

Elsewhere, the euro remained flat at $1.0382, while the British pound dipped 0.1% to $1.2426 following the Bank of England’s forecast of weaker growth and higher inflation. Two BOE officials even advocated for larger rate cuts.

Geopolitical risks persist as U.S. President Donald Trump suspended tariffs on Mexico and Canada but imposed new 10% levies on Chinese imports, adding to market uncertainty.