Yen exchange rate surges

On January 15, 2025, Bank of Japan Governor Kazuo Ueda revealed at a meeting that the Bank of Japan will carefully discuss whether to raise interest rates at the monetary policy meeting held on January 23-24, and said that if the economic and price conditions continue to improve, the Bank of Japan will raise the policy interest rate to adjust the degree of monetary easing. This speech rekindled the market’s expectations for the Bank of Japan to raise interest rates.

In his speech, Kazuo Ueda once again emphasized that the situation of Japan’s spring wage negotiations is one of the key factors in determining the timing of interest rate hikes. He mentioned that when the governors of the Bank of Japan’s regional branches met last week, they heard many encouraging views on wages, and said that the Bank of Japan is currently analyzing the data comprehensively in order to make a decision at the upcoming monetary policy meeting.

Previously, Kazuo Ueda has repeatedly stated that wage trends are the key to whether the Bank of Japan will raise interest rates in the future. It is reported that Japan’s spring wage negotiations are an important activity organized by trade unions in Japan every spring, aiming to increase workers’ wages and benefits through collective bargaining, and are regarded as a “barometer” for observing Japan’s annual wage increases. Last week, the Bank of Japan released a regional economic report saying that many Japanese companies believe it is necessary to continue to raise wages due to structural labor shortages.

After Ueda Kazuo’s speech, the yen rose in the foreign exchange market. Data showed that on January 15, the yen-dollar exchange rate rose from around 158 yen to 1 dollar to around 156 yen to 1 dollar.

In this regard, Morgan Stanley analysts pointed out in a report that Ueda Kazuo’s speech further strengthened the market’s expectations for the Bank of Japan to raise interest rates. Analysts believe that the Bank of Japan is more likely to raise interest rates in January. Based on this, Morgan Stanley analysts further pointed out that the yen exchange rate rose after the speech.