Yen weakens to eight-month low

The Japanese yen weakened to around 153 per dollar on Thursday, sliding to its lowest level since February as shifting political dynamics and soft economic indicators dampened expectations for Bank of Japan tightening.

The currency came under renewed pressure after conservative leader Sanae Takaichi—widely regarded as a proponent of Abenomics-style fiscal expansion and ultra-loose monetary policy—secured a leadership victory that positions her to become Japan’s next prime minister. Her win reinforced market expectations that fiscal stimulus will remain a key pillar of Japan’s policy mix, potentially reducing the urgency for the BOJ to normalize interest rates in the near term.

At the same time, domestic data underscored the fragile state of household finances. Real wages fell 1.4% year-on-year in August, marking the eighth consecutive month of declines as consumer prices continued to rise faster than nominal pay.

The persistent erosion of purchasing power has weighed on private consumption, which accounts for more than half of Japan’s GDP, and further complicated the central bank’s efforts to generate sustainable inflation driven by wage growth rather than import costs.

BOJ Governor Kazuo Ueda reiterated earlier this week that the bank could consider raising rates if inflation and economic activity evolve broadly in line with its projections. However, he also cautioned that global uncertainty, elevated energy costs, and slowing demand in key export markets pose significant downside risks to growth.

Investors are now turning their attention to Friday’s producer price data for fresh clues on inflationary trends and potential implications for BOJ policy.

Meanwhile, the yen’s ongoing weakness has prompted renewed debate within Japan’s political and corporate circles. While a softer currency benefits exporters, it has also intensified import-driven inflation and squeezed household budgets.

Analysts suggest that the Ministry of Finance could step up verbal intervention—or even consider direct market action—if the yen continues to depreciate toward the 155 level, which many view as a potential threshold for government concern.