The Japanese yen advanced on Thursday after comments from Bank of Japan (BOJ) Deputy Governor Ryozo Himino reinforced market expectations that the central bank will continue raising interest rates in 2025.
The yen gained 0.4% to trade at 154.59 against the US dollar by late afternoon in Tokyo, having climbed as much as 0.6% earlier in the day. The rise came alongside an uptick in Japanese government bond (JGB) yields, driven by speculation that the BOJ may be preparing to reduce its balance sheet and tighten monetary policy further.
Himino’s remarks closely mirrored those of BOJ Governor Kazuo Ueda last week, reiterating that rate increases would proceed if the bank’s economic outlook materialised as expected. He also noted that maintaining negative real interest rates over an extended period was unsustainable, emphasising the need to gradually transition towards an environment with positive yields.
Market analysts interpreted the deputy governor’s statements as leaning towards a more hawkish stance. While some uncertainty remains over the precise timing of the next rate hike, many investors expect a move in the second half of the year.
“Himino was somewhat hawkish in his comments,” said Juntaro Morimoto, a senior currency analyst at Sony Financial Group. “It’s difficult to make any predictions on the next move because it’s not expected until the middle of 2025 at the earliest.”
Despite last week’s rate hike, the interest rate gap between Japan and the United States remains substantial, limiting the yen’s upside potential. However, swaps traders now assign a 66% probability to another BOJ rate hike by July, with a full move priced in by October.
Teppei Ino, head of global markets research at MUFG Bank in Tokyo, suggested that elements of Himino’s speech indicate the BOJ may be considering a terminal rate above 1%. If confirmed, such a move would present additional upside risks for the yen, potentially narrowing the gap with other major currencies and altering Japan’s long-standing low-rate monetary policy.
