Yen Weakens Despite Hawkish Ueda Remarks

The Japanese yen hovered around 158.5 per dollar on Tuesday after declining in the previous session, struggling to recover despite hawkish remarks from the Bank of Japan’s leadership. Governor Kazuo Ueda indicated that underlying inflation was approaching the central bank’s 2% target, supported by a moderate economic recovery and tight labor market conditions. He also highlighted supply-side price pressures stemming from higher Middle Eastern energy costs, alongside demand-driven inflation fueled by strong AI-related demand. However, the yen remained under pressure from persistent carry trades, as Japan’s relatively low interest rates continued to make the currency less attractive. The BOJ’s gradual pace of monetary tightening is also seen as insufficient to match rate levels in other major economies.

The Japanese yen traded little changed around 158 per dollar on Monday, remaining within a narrow range after Bank of Japan Governor Kazuo Ueda said underlying inflation was already approaching the central bank’s 2% target, signaling a mildly hawkish stance. Ueda also attributed persistent inflationary pressures to a moderate economic recovery and tight labor market conditions. Meanwhile, Prime Minister Sanae Takaichi pledged to manage the scale of annual government debt issuance “appropriately,” emphasizing that fiscal discipline and economic resilience were essential to supporting the yen and maintaining stable public finances. She stressed the importance of balancing economic growth with fiscal responsibility as Japan confronts a debt burden of around $7 trillion, the largest among advanced economies, in an effort to reassure investors.

The Japanese yen strengthened past 158 per dollar, moving away from six-week lows after Finance Minister Satsuki Katayama warned that authorities were prepared to intervene in the currency market again if necessary. She also emphasized that Washington and Tokyo’s position remained unchanged following their joint intervention to support the yen in July. Her comments came after the currency weakened on Wednesday in response to hotter-than-expected US inflation data. On the monetary policy front, Bank of Japan board member Junko Koeda cautioned against excessive restraint in raising interest rates, signaling that the central bank could remain on track for further rate increases in the coming months. Earlier reports indicated that the BOJ was hesitant to implement an unusual back-to-back rate hike this month, while still considering a potential increase in December.