The Bank of Japan is highly likely to raise interest rates in December! Can the yen continue to rise after breaking through 155? How will the RMB exchange rate respond?

The yen appreciation wave has begun, and carry trades are collapsing

In early December, USD/JPY fell to 154.66, touching a two-week low. What is driving this? As market expectations for the Bank of Japan's rate hike intensify, the once-booming carry trades are rapidly closing out. Investors are unwinding positions borrowed in yen to buy dollars, putting pressure on the yen, which has started to rebound after prolonged weakness.

But the real catalyst comes from the latest statement by Bank of Japan Governor Ueda Kazuo. He said that an assessment of the pros and cons of a rate hike will be made in December, widely interpreted as a hawkish signal. According to overnight index swap (OIS) data, the market has priced in an over 80% probability of a rate hike by the Bank of Japan in December.

Several major investment banks have changed their tone. Economists at BNP Paribas directly stated that Ueda's comments are almost equivalent to a forecast of a December rate hike. JPMorgan Chase and Barclays have also moved up their timetable from January to this month. However, Goldman Sachs remains cautious, believing that the Bank of Japan may wait for more comprehensive corporate wage data, and action in January is still possible.

Narrowing US-Japan interest rate differential drives yen appreciation against RMB and other currencies

Meanwhile, bets on a December rate cut by the Federal Reserve have risen to nearly 90%. The gradual narrowing of the US-Japan interest rate differential is dismantling the long-standing profit logic of carry trades. Coin Bureau analyst Nic Puckrin pointed out that yen exchange rate fluctuations are once again disturbing market sentiment, and a wave of unwinding carry trades is brewing.

Analyst Lee Hardman from Mitsubishi UFJ Financial Group predicts that as the Bank of Japan's rate hike expectations continue to rise, the yen's rally against the dollar may persist. He estimates that by early 2026, USD/JPY could fall toward the 150 level. This also implies that the RMB exchange rate against the yen will adjust accordingly, and investors should closely monitor this when conducting cross-border transactions and asset allocations.

Future focus: Where is the ceiling after the yen breaks through 155?

The key question now is how much further the yen can appreciate. On one hand, the Bank of Japan has reasons to raise rates—domestic wage growth and inflation pressures are both increasing. On the other hand, excessive yen appreciation could harm export competitiveness, and the central bank needs to weigh this risk.

In the short term, if the December rate hike occurs as expected, the yen could strengthen further. After breaking through 154, the market's focus will shift to the battle between support and resistance levels. For RMB-denominated investors, yen appreciation will also impact the returns on Japanese assets, which is a risk factor that cannot be ignored.