FX.co ★ Yen Weakens on Yield Differential

The Japanese yen weakened to around 158.5 per dollar on Wednesday, nearing a two-week low as the wide yield differential between the US and Japan continued to support the dollar. The currency remained under pressure from Japan’s persistently low interest rates and its substantial public debt, even as Prime Minister Sanae Takaichi pressed ahead with expansionary fiscal measures. In a parliamentary address, Takaichi vowed to cut the consumption tax on food products, while stressing that the government would secure the necessary funding without issuing additional bonds, in an effort to reassure financial markets. Meanwhile, data showed that Japan’s real wages rose 1.5% year-on-year in August, the eighth consecutive monthly increase, reinforcing expectations of further interest rate hikes by the Bank of Japan. BOJ board member Ayano Sato also signaled support for raising rates gradually in several stages.