TOKYO : A dollar rally triggered by Republican Donald Trump’s victory in the U.S. presidential election could heighten pressure on the Bank of Japan to raise interest rates as soon as December to prevent the yen from sliding back toward three-decade lows.
Trump’s victory in the U.S. presidential election unleashed sharp dollar gains, as expectations of tax cuts and tariffs on imports drove optimism about economic growth while fueling worries about inflation.
The greenback’s strength briefly pushed the yen to a three-month low of 154.71 on Thursday, well off a high of 140.62 hit in mid-September.
While a weak yen gives exports a boost, it has become a headache for Japanese policymakers by pushing up fuel and food import costs and in turn hurting consumption.
Rising inflation was widely seen as one of the factors behind the massive voter swing against the ruling coalition at last month’s general election.
Japan’s top currency diplomat Atsushi Mimura escalated his warning against sharp yen falls on Thursday, saying authorities were ready to act against “excessive” currency moves.
One nightmare scenario for policymakers would be a renewed plunge in the yen towards the three-decade trough near 162 to the dollar hit in July – a move that prodded the BOJ to raise interest rates to 0.25 per cent on July 31.
Back then, the tumbling yen led to calls from ruling party lawmakers for the BOJ to hike rates, or send clearer signs of its intention to push up borrowing costs.
Prime Minister Shigeru Ishiba stunned markets on Oct. 2 by saying the economy was not ready for further rate hikes, though he later toned down his message to say he would not intervene in BOJ policy.
“Politicians don’t want a weak yen, so even those who have urged the BOJ to be cautious about raising rates could nod to hikes if yen