06:25 AM EDT, 10/04/2024 (MT Newswires) -- Heightened uncertainty over the outlook for the Bank of Japan's decision on interest rates has led to a weaker yen this week as have the pick-up in United States yields and Middle East tensions, stated Mitsubishi UFG.

The yen has been the worst-performing G10 currency this week, with USD/JPY rising from an intra-day low of 141.65 on Monday to a high Thursday of 147.24.

In his first speech to parliament overnight Thursday, new Prime Minister Shigeru Ishiba emphasized that his top economic policy is to defeat deflation. The premier stated that "I will decisively end deflation and build a future for our economy." He will seek to raise wages, boost productivity, support the revival of rural areas and turn Japan into an "investment powerhouse" by continuing to encourage a shift of private savings into investment.

Ishiba has already instructed his cabinet to draw up a package of fiscal support measures that aim to reduce the impact of high prices and support growth, wrote the bank in a note to clients. The package is expected to include cash handouts for low-income households and regional economies. The government will submit an additional budget to parliament after the snap election on Oct. 27 to help fund the fiscal support measures.

Beyond price relief efforts, the government is also expected to try to help households become more energy efficient and support regional economies, added MUFG.

This week's developments have further encouraged market expectations that the BoJ won't be in a rush to hike rates further, according to the bank. The BoJ had already indicated at their last policy meeting that the stronger yen and financial market instability over the summer had helped to dampen upside inflation risks and given them more time to consider whether to hike rates further.

If the BoJ waits until next year to hike rates further, it poses upside risks to MUFG's forecast for USD/JPY to end this year at 141.00.