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(Bloomberg) -- The yen was alone among Group-of-10 currencies in rising against the dollar on Tuesday as traders wagered that Donald Trump’s first salvo on tariffs won’t stop a potential interest rate hike from the Bank of Japan on Friday.
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The Japanese currency appreciated as much 0.5% to 154.78 against the dollar, its strongest level since Dec. 19, despite broad gains in the greenback after the US president said he plans to enact tariffs of as much as 25% on Mexico and Canada in February.
The yen’s advance reflects expectations that the BOJ may raise rates at its meeting this week, with overnight index swaps showing a 92% chance of a move by the conclusion of the Jan. 23-24 policy meeting.
Central bank officials saw a good chance of a hike as long as the start of Trump’s presidency didn’t trigger too many negative surprises, people familiar with the matter said earlier this month.
The yen had at one point on Tuesday slid to 156.23, but quickly reversed those losses. It was up 0.3% at 155.11 at 1:16 p.m. in Tokyo.
“The volatility spooked by Trump’s speech was less than feared, which allowed the yen to price in the increased BOJ rate hike bets,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore.
Nearly three quarters of economists surveyed by Bloomberg also expect a rate hike on Friday, reflecting a jump in expectations after Governor Kazuo Ueda last week strengthened market expectations by saying his board would discuss a possible move.
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