Japanese rate hikes become more likely

Earlier this week, Japan released a slew of economic data, all of which underscore the likelihood of future rate hikes by the Bank of Japan. First, Japan announced that annualized GDP growth for Q4 exceeded 5.5%, which exceeded growth in both the US and EU. Further, Japanese prices increased by 1.6% on an annualized basis, which indicates Japan seems to have finally escaped from the throes of deflation. If growth and inflation numbers continue to exceed expectations, you can assume Japan will begin raising rates by the end of this year. Currency traders are already beginning to build models around such interest rate hikes, all of which favor the Yen.

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