The Japanese yen rose in Asian trading on Friday against a basket of major currencies, attempting to recover from its eight-month low against the US dollar and heading for its first gain in three sessions. The rebound came as traders bought the yen at low levels, encouraged by a warning from Japans finance minister and stronger-than-expected inflation data from Tokyo.

Despite the uptick, the yen remains on track to post a second consecutive monthly loss, pressured by expectations of expansive fiscal policies under newly appointed Prime Minister Sanae Takaichi, the first woman in Japans history to hold the position, who is preparing a massive stimulus package to support the worlds fourth-largest economy.

In line with expectations, the Bank of Japan on Thursday left its monetary policy unchanged, keeping interest rates at 0.50% the highest level since 2008 for the sixth consecutive meeting.

Price overview

USD/JPY fell 0.3% to 153.65, after opening at 154.11 and reaching an intraday high of 154.17.

On Thursday, the yen lost 0.9% against the dollar, marking a second straight decline and hitting its lowest level in eight months at 154.45, pressured by the outcomes of both the US Federal Reserve and Bank of Japan meetings.

Finance Minister Satsuki Katayama

Finance Minister Satsuki Katayama said Friday the government is closely watching currency market movements with great concern, marking her strongest statement on the yen since taking office last week.

We have recently seen rapid, one-sided moves, Katayama said in a regular press briefing. The government is paying close attention to excessive volatility and disorderly movements in the forex market, including those driven by speculation.

Asked about the Bank of Japans decision to keep rates steady, Katayama said the move was very reasonable under current conditions.

Tokyo inflation

Fresh data showed Tokyos core consumer price index rose 2.8% year-on-year in October the fastest pace in four months and above market expectations of 2.6%, following a 2.5% increase in September.

The renewed acceleration in prices adds pressure on the Bank of Japan to consider further rate hikes this year.

Following the data, market pricing for a 25-basis-point rate increase at the BOJs December meeting rose from 50% to 55%.

Investors are now awaiting additional data on inflation, wages, and employment before adjusting expectations further.

Monthly performance

For October, the yen is still down more than 4% against the dollar, heading for a second straight monthly loss.

Sanae Takaichis historic win

Japan entered new political territory this month as Sanae Takaichi became the countrys first female prime minister after winning a decisive parliamentary vote. According to NHK, Takaichi secured 237 votes in the first round, eliminating the need for a runoff in the 465-seat lower house.

Her victory followed a coalition deal between the ruling Liberal Democratic Party and the Japan Innovation Party, under which she agreed to some of the latters policies including reducing the number of parliamentary seats, offering free secondary education, and freezing the food consumption tax for two years.

A long-time ally of the late Shinzo Abe, Takaichi supports stimulus-driven Abenomics-style policies, fueling expectations of continued expansionary fiscal measures that may buoy Japanese equities but keep the yen under pressure due to prolonged monetary accommodation.

New stimulus package

According to government sources cited by Reuters, Takaichis administration is preparing an economic stimulus package expected to exceed 13.9 trillion (about $92 billion) to help households cope with rising prices and inflation. The final size is still being discussed, with an announcement expected early next month.

Bank of Japan policy

At Thursdays meeting, the BOJ maintained its current policy stance by a 7-2 vote, with two board members again advocating for a hike to 0.75%. The split underscores growing pressure within the bank to normalize policy.

In its quarterly outlook, the BOJ raised growth forecasts for the current fiscal year and upgraded its inflation projection for fiscal 2026, now expecting core inflation to stay above 2% in the latter half of its forecast period through March 2027.

Governor Kazuo Ueda offered little guidance in his post-meeting press conference on the timing of the next rate increase, which added to pressure on the yen.