USD/JPY fell to 154.35 as the Japanese Yen (JPY) strengthens amid growing expectations for a Bank of Japan (BoJ) rate hike this month. Markets anticipate a 25bp BoJ hike on 14 December, with two additional hikes next year likely to lift the policy rate to 1.25% by end-2026, MUFG's FX analysts Lee Hardman and Abdul-Ahad Lockhart report.

BoJ rate hike expectations lift Yen

"The yen has continued to strengthen during the Asian trading session resulting USD/JPY falling to a fresh low of 154.35. It leaves the yen on track to record its second consecutive week of gains against the US dollar. The yen has benefitted this week from building expectations for the BoJ to resume rate hikes this month."

"The Bloomberg report provides confirmation that recent comments from BoJ officials including Governor Ueda were intended to signal to market participants that rates would be raised this month, and that the government will not stand in their way. The report did note though that the final decision over a rate hike will be made at the last minute after assessing all economic data and information. "

"The latest Tankan survey is scheduled to be released ahead of the next BoJ policy meeting on 14th December, and unless there is a significant downside surprise to business confidence we expect the BoJ to hike rates by 25bps this month. We then expect the BoJ to stick to a gradual pace of tightening, forecasting two rates hikes (every six months) next year lifting the policy rate up to 1.25% by the end of 2026."