Yen Bounces Back on Faster BoJ Rate Hike Bets and Weaker US Data

The Japanese yen has rebounded from its two-week low against the US dollar due to increased bets that the Bank of Japan (BoJ) may raise interest rates sooner than expected. Market expectations suggest a roughly 70% probability of a 25-basis-point hike by April, up from around 50% a week earlier.

This shift in market sentiment is largely driven by recent comments from BoJ officials and stronger-than-anticipated inflation figures, which have prompted traders to price in a higher likelihood of a rate hike. The US dollar has also come under pressure following the release of softer retail sales and employment data, causing the US Dollar Index (DXY) to fall 0.3% on the day.

Takuya Kanda, a senior forex strategist at Gaitame.com Research Institute, stated that 'The BoJ is clearly shifting toward a more hawkish path.' The yen's recovery reflects a reassessment of the policy divergence between Japan and the US.