Currency Tug of War: Yen's Struggle Amidst Rate Hike and Economic Policies

The Japanese yen weakened against the dollar despite a recent interest rate hike and potential market intervention. Record government spending plans aim to boost the economy while inflation exceeds targets. Core inflation in Tokyo decelerated, supporting further rate increases. Officials signal readiness for currency intervention to stabilize the yen.

The Japanese yen weakened on Friday against the dollar as investors speculated on potential market interventions aimed at supporting the currency. Despite the Bank of Japan's recent interest rate hike, concerns persist over Japan's expansive fiscal policy.

Japan's government has proposed record spending for the upcoming fiscal year, while managing debt issuance, highlighting Prime Minister Sanae Takaichi's challenge to invigorate the economy amidst inflation concerns. Recent data from Tokyo indicate a slowdown in core consumer inflation, even as it remains above the central bank's 2% target, reinforcing the likelihood of more rate hikes.

Japanese officials have stepped up warnings about possible interventions to arrest the yen's decline, with Finance Minister Satsuki Katayama issuing a strong caution. Meanwhile, the dollar showed slight gains against other currencies, with the global financial outlook influenced by prospects of Federal Reserve rate cuts.