06:49 AM EST, 01/16/2025 (MT Newswires) -- The yen (JPY) continued to strengthen overnight Wednesday resulting in USD/JPY falling to an intra-day low of 155.21 as the pair moves further below the high set at the end of last week following the release of the much stronger United States nonfarm payrolls report at 158.87, said Mitsubishi UFG.

The main trigger for the stronger yen has been building expectations for the Bank of Japan to hike rates again as soon as next week, stated MUFG.

Those expectations were reinforced further overnight by the release of an unsourced Bloomberg report stating that BoJ officials see a good chance of an interest rate hike next week as long as the arrival of Donald Trump at the White House doesn't trigger too many negative surprises.

The BoJ will reportedly reach a final conclusion after examining economic data, markets and the implications of U.S. economic policies, wrote the bank in a note to clients. The officials reportedly see Japan's economy and inflation continuing to move largely in line with their projections, raising their confidence that the BoJ's economic outlook will materialize in support of their stable 2% inflation target.

A likely upgrade to the BoJ's forecasts for inflation excluding fresh food and energy for this fiscal year and next year is viewed as supportive for a rate increase at next week's policy meeting, pointed out MUFG. In addition, the officials have become more confident about wage increases, particularly after the Branch managers' meeting earlier this month. They expect the annual spring wage negotiations to produce a solid outcome similar to last year's and noted that Japanese firms are increasingly taking raising wages as a given.

Overall, the report sends the strongest signal yet that the BoJ is preparing market participants for a rate hike next week, according to MUFG. Another rate hike will only be derailed if President-elect Trump's initial policy implementation plans prove disruptive for financial markets and/or raise downside risks over the outlook for the U.S. economy.

It follows on from similar hawkish policy messages delivered by Governor Kazuo Ueda and Deputy Governor Ryozo Himino in recent days giving the Bloomberg report more credibility. The Japanese rate market has moved accordingly to more fully price in another rate hike as soon as next week, added the bank.

According to Bloomberg, there are around 20bps of hikes priced in now for next week and around 50bps of hikes in total by the end of this year.