Tokyo: The Japanese yen held on to its recent gains on Monday, supported by growing market expectations that the Bank of Japan (BoJ) could maintain a more hawkish policy stance, even as concerns linger over Japan’s fiscal outlook.
The yen remained firm against the US dollar in early Asian trade, as investors continued to price in the possibility of further policy normalization by the BoJ. Recent comments from central bank officials and persistent signs of wage growth have strengthened expectations that Japan may gradually move away from its ultra-loose monetary policy framework.
Market participants are increasingly betting that sustained inflation above the BoJ’s 2% target, coupled with improving domestic demand, could prompt the central bank to signal additional rate hikes or a faster reduction in bond-buying measures in the coming months. These expectations have helped underpin the yen, which had been under pressure for much of the past year due to wide interest rate differentials with the United States.
However, gains in the Japanese currency were partially capped by ongoing fiscal concerns. Japan’s public debt remains the highest among major developed economies, and recent discussions around additional government spending to support growth have raised questions about long-term fiscal sustainability. Analysts warn that aggressive fiscal expansion could eventually weigh on the yen if it leads to higher debt issuance without corresponding structural reforms.
Global factors also played a role in currency movements. A relatively cautious tone in international markets, ahead of key US economic data and future signals from the Federal Reserve, reduced demand for the dollar and provided indirect support to the yen. Lower US Treasury yields in recent sessions have narrowed the yield gap slightly, easing downward pressure on the Japanese currency.
Looking ahead, investors are expected to closely monitor upcoming BoJ meetings, inflation data, and wage negotiations for clearer signals on the policy path. Any firm indication that the BoJ is committed to further tightening could extend the yen’s recovery, while setbacks on the fiscal or growth front may limit upside potential.
For now, the yen appears to be finding a delicate balance, with hawkish BoJ expectations helping to offset persistent worries over Japan’s fiscal health.