Cailianshe news on October 3rd: On Wednesday local time (October 2nd), Japan's newly appointed Prime Minister Shizo Abe stated that the Japanese economy is not yet ready for another rate hike by the central bank.

This statement caused the US dollar to rise more than 2% against the Japanese yen, closing at 146.43. Calculations show that this is equivalent to a yen exchange rate dropping more than 1.9% intra-day. Influenced by the sharp decline of the yen, the Nikkei Index December contract futures continued to rise.

On that day, Shizo Abe held a meeting with the Bank of Japan Governor Haruhiko Kuroda. After the meeting, Shizo Abe told the media, "I believe the current environment is not yet suitable for further rate hikes. I told the Governor that I hope the economy can end deflation in a sustainable manner under a loose monetary trend."

Haruhiko Kuroda also stated, "I told the Prime Minister that we are supporting the economy with loose monetary conditions," but he added that if the economic and price developments align with the central bank's predictions, rate hikes will continue, "We will cautiously adjust the extent of monetary support and take the time to assess the developments."

Analysts point out that Shizo Abe soon met with Haruhiko Kuroda after winning the election, demonstrating the government's determination to closely coordinate with the central bank. Most observers have already expected that the Bank of Japan will not change interest rates at the end of this month's meeting, and the next rate hike is more likely in December this year or January next year.

On the same day, Akira Amari, a close aide to Shigeru Ishiba and Japan's newly appointed Minister of Economic, Finance and Regeneration, also mentioned that he hopes the Bank of Japan will be cautious about further rate hikes. Despite the current 0.25% policy rate being 'abnormal from a global perspective,' the top priority is to 'overcome deflation.'

New Finance Minister Taro Aso also expressed caution when asked about the Bank of Japan, reiterating the view that overcoming deflation should be the top priority, 'I hope the Bank of Japan can implement appropriate monetary policies to achieve the stable 2% inflation target. I also hope the Bank of Japan can communicate cautiously with the market.'

Lee Hardman, Senior Foreign Exchange Analyst at Mitsubishi UFJ Financial Group, stated that the Bank of Japan is expected to slow down its rate hike pace under political pressure, which will encourage market participants to rebuild short positions on the yen. Hardman noted that the yen has strengthened in the summer, helping to mitigate the upward inflation risk.

Intraday, the 'mini non-farm' data released by the USA exceeded expectations, with the U.S. 10-year Treasury notes yield rising by about 5 basis points to 3.78%. Federal Reserve Chairman Jerome Powell mentioned on Monday that the U.S. economy continues to have a solid foundation, which dampened expectations for a significant rate cut by the Fed again, boosting the U.S. dollar.

Leah Traub, Investment Portfolio Manager and Head of the Foreign Exchange Team at Lord Abbett, stated, 'Powell's Federal Reserve is more hawkish on monetary policy than the market perceives, while the Bank of Japan is not in a hurry to continue raising interest rates—this is a double blow to the yen.'

Editor/Lambor