Yen Rises As Pressures Mount on Bank of Japan to Act

Above: File image of Toshimitsu Motegi. Photo Credit: Greg Webb / IAEA.

The Japanese yen rose after political pressure mounted on the Bank of Japan to raise interest rates further.

The Pound to Yen exchange rate dropped 0.86% d/d to 201.37 after Liberal Democratic Party Secretary General Toshimitsu Motegi said, "the BoJ needs to clearly communicate that it will firmly proceed with the normalisation of monetary policy."

Motegi's comments are the latest indication that political pressure is growing on the Bank of Japan to raise rates to bolster the Yen.

The Dollar to Yen exchange rate was 0.70% lower d/d at 155.94.

"While LDP Secretary General Toshimitsu Motegi did not explicitly call on the BoJ to raise rates at next week's policy meeting, his comments do indicate growing unease amongst Japanese politicians over the slow pace of policy normalisation," says Lee Hardman, Senior Currency analyst at MUFG Bank Ltd.

Motegi's comments follow those of Digital Transformation Minister Kono Taro, who said the Bank of Japan must raise interest rates to support the yen.

"The currency is a problem for Japan," Kono said, adding, "the yen is too cheap and we need to bring it back."

He said that while a cheaper yen can help boost exports, the benefit to the country was now limited because many Japanese companies have production facilities overseas.

The Yen has fallen to multi-decade lows against major peers thanks to the Bank of Japan's ultra-low interest rates. This allows investors to borrow in Yen and invest in higher-yielding assets in countries where interest rates are much higher.

This creates an outflow that weighs on the Yen and boosts the likes of the Dollar, Pound et al.

Yet, despite growing calls for tighter monetary policy, the Bank of Japan is expected to maintain interest rates at current levels this week, judging that inflation is well contained.

But MUFG thinks the Bank will go ahead with a cut.

"We expect yen weakness and the timing of the upcoming LDP leadership election should favour delivering an earlier hike next week rather than waiting until later this year," says Hardman.