Japanese Yen Hits One-Week High as Strong Data Fuels Rate-Hike Bets

The Japanese yen climbed to its strongest level in at least a week, supported by a series of upbeat domestic economic indicators and growing market expectations that the Bank of Japan is edging closer to raising interest rates.

The U.S. dollar/yen pair fell by around 0.6% on Monday, as the yen gained ground against the dollar. The move reflected renewed confidence in Japan’s economic outlook, alongside speculation that the central bank may soon shift toward tighter monetary policy.

Fresh data showed a notable improvement in business sentiment. The quarterly Tankan survey revealed that the manufacturing outlook index for the fourth quarter rose by three points to 15, comfortably beating expectations of 12 and marking its highest reading in seven years. The figures point to a meaningful rebound in confidence among Japanese manufacturers.

Momentum was also evident in the services sector. Japan’s services activity index increased by 0.9% month-on-month in October, far exceeding forecasts of a modest 0.2% rise and representing the strongest monthly gain in six months.

Rising Rate Expectations Support the Yen

Beyond the data, market attention is increasingly focused on the Bank of Japan’s upcoming policy meeting. Traders are now pricing in a high probability—around 95%—that the central bank will deliver a 25-basis-point interest rate hike, a move that would mark a significant step away from its long-standing ultra-loose stance.

Additional support for the yen came from a decline in U.S. Treasury yields on Monday. Lower U.S. yields tend to benefit low-yielding currencies such as the yen, narrowing interest rate differentials and boosting demand.

Taken together, stronger economic indicators, heightened expectations of a policy shift by the Bank of Japan, and softer U.S. bond yields have combined to place the yen in a position of strength against the dollar in current trading.