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TODAY’S JAPANESE DATA IMPLIES ROUGH RIDE FOR BOTH JGBs & JPY

ADMIN || 8th December 2025

USD/JPY is ticking slightly higher after this morning’s data dump which included Japan’s GDP deflator that came in higher than estimated, yet traders appear more focused on the negative reading for quarterly growth.

That suggests FX traders see a pause for the BOJ after an expected interest rate hike next week.

A rate hike would push the policy rate in Japan to its highest level since 1995, with officials seeing a high likelihood of increasing the benchmark rate by a quarter percentage point to 0.75% at the end of a two-day gathering on Dec. 19. A key market focus is how aggressively the central bank will point to additional hikes.

A one & done interest rate hike by the Bank of Japan might not help to end yen underperformance when the tightening is in part justified by a weaker yen. In fact, if global risk sentiments remain well supported, JPY can still under perform. Also, the fiscal risk premium will keep JPY under pressure.

Japanese bonds look like they are in for more downside after labor cash earnings printed above even the highest forecast in Bloomberg’s survey.

The data should reassure the BOJ that a rate hike is warranted this month, and continue to nudge the yield curve flatter at the long end.

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