Yen Slides Near Four-Decade Low as Bank of Japan Eyes More Rate Hikes

The Japanese yen slid toward its weakest level in nearly four decades against the US dollar, keeping pressure on the Bank of Japan as it continues to normalise policy. The central bank raised its benchmark rate to 1% in June, the highest since 1995, and officials have signalled a continued tightening bias as inflation risks build, driven in part by higher import and energy costs stemming from the Middle East conflict. A former Bank of Japan official, Tsutomu Watanabe, told Bloomberg that the eventual peak in interest rates could be higher than most investors expect, suggesting a terminal rate around 2% or perhaps a little above, and that the central bank may need to pick up the pace of hikes later this year. Persistent yen weakness has become a key concern for policymakers because it raises the cost of imports and can push inflation higher, even as it flatters the earnings of Japanese exporters and has supported record gains in the Nikkei stock index. Markets are watching closely for any signal on the timing of the next move and for the risk of intervention to support the currency.