Market News

(Bloomberg) -- The yen is outperforming its peers so far this week as traders position for the yield gap between the US and Japan to narrow next month.

The Japanese currency rose as much as 0.8% to 151.84 against the dollar on Wednesday and has jumped 1.9% this week to put it at the top of the leaderboard of Group-of-10 currencies.

Strategists say that the yen has room to rise further as overnight-indexed swaps are now pricing in a more-than 60% chance of both a rate hike in Japan and a cut in the US.

Market focus on a shift in benchmark rates in both Japan and the US is intensifying, said Takeshi Ishida, a currency strategist at Kansai Mirai Bank. “If both central banks change their policies, the yen could strengthen past the 150 level,” he said.

Traders are gearing up for a rate hike from the Bank of Japan next month after Governor Kazuo Ueda, in a speech last week, was seen as leaving open that possibility. Although minutes from the US central bank’s latest meeting showed broad support for a gradual approach to rate reductions, Federal Reserve Bank of Minneapolis President Neel Kashkari said on Monday that it’s still appropriate to consider another cut next month.

“We expect a FOMC rate cut and a BOJ rate hike in December, so there is still scope for market pricing to shift against dollar-yen,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia in Sydney.

US markets are closed Thursday for Thanksgiving, which may exacerbate moves as trading will be thinner than usual.