Takaichi Faces Next Political Test as Yen Rally Forces Rate Hike Decision

The yen's sharp rebound has forced Japan's government to explain how far it is prepared to tolerate higher interest rates to restore market confidence. Prime Minister Sanae Takaichi faces a new version of the currency problem that has shaped her summer, as investors increasingly price in a Bank of Japan (BOJ) rate hike at its September 17-18 meeting.

The yen rose to a seven-month high against the dollar on September 8, reflecting growing expectations that the central bank will lift its policy rate by 25 basis points to 1.25%, following its June increase to 1% and its decision to hold steady in July.

Finance Minister Satsuki Katayama said Japan and the United States remain aligned on currency policy and will continue close communication to support orderly foreign exchange markets, signaling that Tokyo remains alert even after the yen's recent rally.