Yen hits 2-month high of 154 against dollar on BOJ rate hike speculation

The yen strengthened to a two-month high against the U.S. dollar in the 154 range in Tokyo, amid rising speculation the Bank of Japan could raise its benchmark interest rate at its policy meeting next week.

Bets that the central bank could lift interest rates have been fueled by recent remarks from Japanese ruling party lawmakers perceived by the market as urging the BOJ to make progress in normalizing its monetary policy.

The yen’s appreciation came after Toshimitsu Motegi, secretary general of the Liberal Democratic Party, reportedly said Monday in a speech that the BOJ must clearly communicate how it will normalize monetary policy, including gradual interest rate hikes.

Prime Minister Fumio Kishida, meanwhile, said in a speech on Friday that normalizing monetary policy would promote economic growth, adding that the government is closely coordinating with the central bank by sharing its overall perspective on the economy.

The yen had been depreciating sharply against the dollar, with the BOJ’s first interest rate hike in 17 years in March doing little to reverse the currency’s weakening trend, raising concerns over its negative impact on the Japanese economy.

The central bank is scheduled to hold a policy-setting meeting next Tuesday and Wednesday, at which the Policy Board is expected to discuss how much it should reduce government bond buying.