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SINGAPORE: The yen was poised on Friday for its strongest weekly performance in over a month as expectations grow that the Bank of Japan will raise rates next week, putting the dollar on the back foot ahead of Donald Trump's return to the White House.
Remarks from BOJ officials along with Japanese data that point to persistent price pressure and strong wage growth have helped boost market confidence that a rate shift is in the offing, with traders pricing in an 80% chance of a hike next week.
The yen has climbed 1.5% against the dollar this week, its strongest weekly run since late November. It was last a tad weaker at 155.40 per dollar on Friday but still close to the one-month high of 155.10 it touched on Thursday.
"Inflation and wage data does suggest that the BOJ could hike rates further, and commentary is also signalling one," said Charu Chanana, chief investment strategist at Saxo.
"However, yen strength could be fleeting especially if (BOJ Governor Kazuo) Ueda surprises again with a dovish commentary despite a rate hike."
China's yuan was steady after data showed the world's second biggest economy grew 5.4% in the fourth quarter, significantly beating analysts' expectation and putting full-year 2024 growth at 5%, bang in the centre of Beijing's target.
Spot yuan was a tad stronger at 7.3266 per dollar, with offshore yuan last fetching 7.3388. The yuan has hovered near 16-month lows in recent days weighed down by strong dollar, U.S. tariff threats and low Chinese bond yields.
China's economy has struggled for traction since a post-pandemic rebound quickly fizzled out, with a protracted property crisis, mounting local debt and weak consumer demand weighing heavily on activity.
"We don't reckon the economy is on a strong footing despite the recent stimulus bump and more fiscal funds are likely to be deployed at the Budget on 5th March to cushion China's economy against Trump's policies," said Alex Loo, an FX and Macro strategist at TD Securities, Singapore.
The euro was steady at $1.03065 and sterling was little changed at $1.22425. That left the dollar index, which measures the U.S. currency against six other units, at 108.94, inching away from a high of more than two years touched at the start of the week.
The index is set for a 0.6% drop in the week, which would snap a six-week winning streak, after traders started pricing in the prospect of two rate cuts this year in the wake of an easing U.S. core inflation data on Wednesday. The Federal Reserve last month projected two rates in 2025.
But data on Thursday showed U.S. retail sales increased in December, pointing to strong consumer demand and lending strength to the view that the Fed should be cautious in its approach to cutting rates this year.
Fed Governor Christopher Waller said on Thursday three or four rate cuts are still possible if economic data weakens further.
Markets are currently pricing in 41 basis points of cuts from the Fed this year, according to LSEG data - up from 37 basis points before Waller's comments.
The benchmark Treasury 10-year yield was at 4.612% in Asian hours. It as dropped over 16 basis points this week, its weakest weekly performance in over a month.
Investors are also awaiting Trump's inauguration speech on Monday to get a better sense of his policy steps. Policies on tariffs and taxes that he has outlined so far are expected to boost growth but also be inflationary.
(Reporting by Ankur Banerjee in Singapore; Editing by Edwina Gibbs and Kim Coghill)