Yen Weakens as US-Japan Yield Gap Widens and Wage Growth Strengthens Rate Hike Expectations

The Japanese yen weakened to approximately 158.5 per dollar on Wednesday, nearing two-week lows as the significant yield gap between the US and Japan continued to strengthen the dollar's position.

The yen faced additional pressure due to Japan's relatively low domestic interest rates and its substantial debt burden. Prime Minister Sanae Takaichi announced plans to cut the consumption tax on food products during a parliamentary address, assuring financial markets that funding would be secured without issuing new bonds.

Despite these fiscal measures, Japan's real wages rose 1.5% year-on-year in August, marking the eighth consecutive month of gains. This trend has reinforced expectations for further interest rate hikes by the Bank of Japan (BOJ).

BOJ member Ayano Sato supported the idea of raising interest rates gradually in multiple stages, adding to the growing speculation about future monetary policy adjustments.