Japanese Yen Surges as Upbeat Wage Data Bolsters Rate Hike Bets

The Japanese Yen (JPY) has rallied to its highest level since February 18 due to upbeat wage data and GDP growth, bolstering bets for a Bank of Japan (BoJ) interest rate hike.

A government report showed that Japan's real wages climbed 2.4% in July from a year earlier, marking the biggest increase since May 2021. The inflation rate used by the labor ministry to calculate the real wages moved above 2% for the first time this year.

The revised GDP data revealed that Japan's economy expanded at an annualized rate of 1.4% during the April, June period, revised up from the preliminary estimate of 1.1%. This supports the case for the BoJ to raise interest rates next week and continue tightening thereafter.

Traders now seem to have fully priced in a 25 basis point (bps) rate hike at the September 17-18 BoJ meeting, with some analysts even seeing the risk of a jumbo hike to anchor rising inflation expectations. Renewed speculation of another currency market intervention by Japanese authorities also underpins the JPY.