By Kevin Buckland
TOKYO (Reuters) – The yen jumped as much as 1% to a six-week high at 150 per dollar on Friday, after faster than expected inflation in Tokyo supported bets for a Bank of Japan interest rate hike next month.
The dollar sagged against most major peers in trading thinned by the U.S. Thanksgiving holiday, with sterling at the highest since Nov. 20.
The euro edged back toward Wednesday’s one-week high after recovering from a small decline in the previous session to end that day little changed.
German consumer price data on Thursday was flat, despite expectations of a second consecutive increase. Dovish comments from a European Central Bank official overnight and budget wrangling in France also weighed on the shared currency.
Despite the dollar doldrums of the past week, following the currency’s surge to a two-year high against a basket of key rivals a week ago, it is still on track for a more than 2% gain for November, following its more than 3% leap last month.
Most of that has been on Donald Trump’s resounding election victory on Nov. 5, pumping up expectations of big fiscal spending, higher tariffs and tighter borders, all seen by economists as inflationary.
This week, the is on track for a 1.5% slide. The yen had made a notable comeback, set for gains of about 3%.
Beyond the dollar’s weakness, exacerbated by sliding Treasury bond yields, Japan’s currency has also been boosted by safe haven flows amid Trump’s broad tariff warnings to Mexico, Canada and China this week, and by growing bets that the BOJ will raise rates again on Dec. 19.
Traders currently lay about 60% odds for a quarter-point increase, and just over half of economists in a Reuters poll predicted the same.
The dollar drooped 0.93% to 150.09 yen as of 0129 GMT.
The dollar index was 0.18% weaker at 105.88.
Potentially adding to the case for a hike, Tokyo’s core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.2% in November from a year earlier. That exceeded a median market forecast for a 2.1% gain and accelerating from a 1.8% increase in October.
However, Mizuho (NYSE:) Securities strategist Shoki Omori expects the BOJ to keep policy settings steady next month.
“Real service consumption, which carries significant weight in the (Tokyo consumer price) index, is gradually picking up but I see it not enough for the BOJ to go bullish on a rate hike, and spending on real non-durable goods is declining,” Omori said.
“It can be concluded that demand-pull inflation has yet to clearly emerge, (and) given that the government is also focused on ‘overcoming deflation’ and is preparing a supplementary budget, the likelihood of an interest rate hike in December remains low.”
Omori said the dollar-yen pair is “oversold” from a technical perspective, and has the potential to recover above 152 by year-end.
The euro added 0.13% to $1.0568, nudging back towards Wednesday’s peak of $1.058775.
ECB policymaker Francois Villeroy de Galhau said on Thursday that the central bank should keep its options open for a bigger rate cut next month.
Sterling rose 0.16% to $1.27085, after earlier touching $1.2712.
