Japanese Prime Minister Shigeru Ishiba has stated that the economy is not yet ready for an additional interest rate increase, impacting the yen's exchange rate. Ishiba expressed his concern about further rate hikes and emphasized the need for the economy to move towards ending deflation sustainably under the trend of monetary easing.
Following his remarks, the yen weakened from approximately 144.18 to 144.89 against the dollar, as investors reacted to potential government pressure on the central bank. The yen's decline was exacerbated by stronger-than-expected U.S. employment data, causing the yen to drop about 1% during trading, making it the weakest among G-10 currencies.
Signals from the new government under Ishiba have indicated a reluctance to see the Bank of Japan (BOJ) raise borrowing costs further. Cabinet ministers have downplayed expectations for monetary policy normalization, stressing the BOJ's focus on eliminating deflation. Lee Hardman, a senior foreign exchange analyst at Mitsubishi UFJ Financial Group, noted that this stance would likely encourage market participants to rebuild short positions on the yen, anticipating greater political pressure on the BOJ to slow down the pace of rate hikes.
