Yen strengthens

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SINGAPORE- The dollar’s towering rally hit a speed bump on Wednesday as traders turned cautious ahead of a closely watched US consumer inflation report due later in the day, while the yen pulled ahead following remarks from Japan’s central bank chief.

Broad currency moves were modest on Wednesday, though the yen was a notable outperformer as it rose roughly 0.5 percent against the dollar on growing expectations that the Bank of Japan (BOJ) could deliver a rate hike at next week’s policy meeting.

The Japanese currency strengthened on the back of comments from BOJ Governor Kazuo Ueda, who said the central bank will raise interest rates and adjust the degree of monetary support if improvements in the economy and price conditions continue.

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His remarks come just a day after deputy governor Ryozo Himino said the BOJ would debate whether to raise interest rates at next week’s policy meeting.

The yen was last 0.43 percent higher at 157.29 per dollar, with markets now pricing in a 70 percent chance of a 25-basis-point hike next week.

“We maintain our call for a 25bp hike at next week’s meeting,” said Citi economist Katsuhiko Aiba.

“The focus is on whether US policy, particularly on tariffs, that could be announced after the US Presidential inauguration and prior to the BOJ meeting will be benign for the Japanese and global economies and not cause turbulence in financial markets.”

The main market event on Wednesday will be a reading on US inflation, where investors are forecasting a 0.2 percent increase in core consumer prices on a monthly basis for December.

Any upside surprise could further limit the scope for Federal Reserve rate cuts this year.

The greenback stabilized in the Asian session after falling overnight and edging away from a more than two-year peak hit against a basket of currencies at the start of the week. The dollar index was last 0.03 percent lower at 109.17.

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