On Friday, the Japanese yen fell against the US dollar as investors anticipated probable intervention to support the currency. However, the dollar rose marginally against the euro in low trading volumes. Despite the Bank of Japan’s interest rate hike last week, the yen has stayed weak due to concerns over the country’s expansive fiscal strategy. Japan’s government on Friday proposed record spending for the next fiscal year while limiting debt issuance, Prime Minister Sanae Takaichi’s challenge is to improve the economy while inflation remains over the central bank’s target. On Friday, data revealed that core consumer inflation in Japan’s capital slowed in December due to food cost pressures, but remained above the central bank’s 2% target, supporting the case for more interest rate increases. On Thursday, Bank of Japan Governor Kazuo Ueda stated that the country’s inflation is gradually reaching the central bank’s target of 2%, indicating that interest rates will continue to rise.

The yen has recovered from recent lows, however, as Japanese policymakers warn of potential intervention. Japan has a free hand in dealing with excessive yen movements, Finance Minister Satsuki Katayama said on Tuesday, offering the strongest warning to date about Tokyo’s willingness to interfere in the currency market to prevent significant drops in the currency.

The dollar gained 0.48% against the yen, closing at 156.54. It hit 157.77 last Friday. The dollar index increased 0.01% to 98.04 against a basket of currencies, including the yen and euro. The euro fell 0.04% to $1.1772.

Sterling dropped 0.22% to $1.3493

The dollar has dropped this year as investors anticipate additional Federal Reserve rate reduction, while other central banks are likely to hold rates unchanged.

Fed officials are juggling a worsening labor market with concerns about inflation, which remains over the central bank’s 2% annual objective.