FOREX-Yen weakens on report Japan PM questioned rate hike plans

By Karen Brettell

NEW YORK, Feb 24 (Reuters) - The Japanese yen slipped on Tuesday after a news report that Japanese Prime Minister Sanae Takaichi had conveyed her reservations about further interest rate hikes to Bank of Japan Governor Kazuo Ueda, raising doubts over the next rate increase.

The report, if true, signals potential friction over monetary policy that could complicate the BOJ's timetable as coordination with the newly strengthened administration becomes more delicate.

“This is definitely the fear that I think has been weighing on markets,” said Eric Theoret, currency strategist at Scotiabank in Toronto. “We're getting news that there may have been, if not pressure, at least a communication of disagreement.”

Ueda had characterized the meeting last Monday as a general exchange of views on economic and financial developments, and had said the prime minister had not made any specific monetary policy requests.

A Reuters poll released last week showed that a majority of economists expect the BOJ to raise its key rate to 1% by the end of June, with some anticipating a move as soon as April because of mounting concerns about inflationary pressures and a weak yen.

Traders are currently pricing in 50% odds of a hike in April, and a 65% chance of a hike by June.

"Persistent inflation pressures, highlighted by steady services PPI and supported by potential wage gains, reinforce the case for further tightening, though the BOJ is expected to proceed gradually to avoid putting strain on banks and smaller businesses," analysts at LMAX Group said in a report on Tuesday.

The Japanese yen JPY= weakened 0.69% against the greenback to 155.74 per dollar.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.14% to 97.82, with the euro EUR= down 0.03% at $1.178.

Traders are also focused on how the Trump administration plans to implement new tariffs, after the U.S. Supreme Court on Friday struck down levies introduced under an emergency law.

The United States began collecting a temporary new 10% global import tariff on Tuesday, but the Trump administration was working to increase it to 15%, a White House official said.

The new levies are grounded in an untested law, known as Section 122, that allows tariffs up to 15% but requires congressional approval to extend them after 150 days. Trump said he would use the 150-day period to work on issuing other "legally permissible" tariffs.

“It's been a pretty remarkably muted reaction to all of the tariff narrative,” said Theoret. “It's the major trading partners and their response that will maybe be a bit more of an unknown."

Trump on Monday warned countries against backing away from recently negotiated trade deals with the U.S., saying that if they did, he would hit them with much higher duties under different trade laws.

He may offer new insights on his tariff plans when he delivers his State of the Union speech later on Tuesday.

China's offshore yuan CNH= rose to its strongest against the dollar since April 2023 on bets that the ruling will bolster Chinese exports.

The currency was last trading 0.16% higher at 6.878 per dollar.

Traders are also focused on rising tensions between the United States and Iran.

Iran's Foreign Minister Abbas Araqchi said on Tuesday that a nuclear deal with the U.S. was "within reach, but only if diplomacy is given priority", days ahead of an expected fresh round of talks between the two sides in Geneva.

In cryptocurrencies, bitcoin BTC= fell 0.14% to $64,484.