The Bank of Japan is cautious about raising interest rates, and the yen is hovering near a five-month low.

Due to the hawkish remarks of the Federal Reserve and the cautious attitude of the Bank of Japan towards further tightening of policy, the Japanese yen hovered near a five-month low against the US dollar on Friday. As of the time of writing, the USD/JPY exchange rate was at 157.62, close to the daily low of 158.09, the lowest level since July 17. The summary of the Bank of Japan's December policy meeting released on Friday showed that some officials have become more confident in recent rate hikes, while others remain cautious regarding wage trends and the uncertainty of Donald Trump's government policies. Also released on Friday, Japan's inflation data for December supports further rate hikes. Bank of Japan Governor Haruhiko Kuroda said last week that it would take "quite some time" to fully assess wage trends and overseas economic outlooks, especially in the US, after the central bank kept interest rates unchanged. In contrast, Federal Reserve Chairman Jerome Powell said earlier this month that Fed officials "will be cautious about further rate cuts," after the Fed cut rates by 25 basis points as expected. Economists believe that Trump's proposals for deregulation, tax cuts, increased tariffs, and tightening immigration policies will both benefit economic growth and inflation. The USD/JPY is expected to appreciate by 5.4% this month and by 11.9% year-to-date. Mizuho Securities analysts Masafumi Yamamoto and Masayoshi Mihara wrote in a client report, "The uptrend is strong, but the market feels that the current trend of a strong dollar and weak yen is somewhat overdone, with the risk of a pullback." "Japanese officials may also issue stronger intervention warnings." On December 20, Japan's finance minister and top foreign exchange diplomat separately expressed shock at the "excessive" volatility of exchange rates and prepared to take "appropriate action." The US dollar index, which measures the dollar against the yen, euro, pound, and three other major currencies, held steady at 108.09, hovering around that level for the week. The index has risen by 2.2% this month. Many traders are expected to be on holiday around Christmas and New Year. As of the time of writing, the EUR/USD exchange rate remained flat at 1.0412, with a cumulative decline of 1.6% for December. The GBP/USD had little change on the day, at 1.2526, with a cumulative decline of 1.7% for the month. The leading cryptocurrency, Bitcoin, remained stable at $96,379, with a 1.2% decline for the month but hitting a historic high of $108,379 on December 17. The index has risen by approximately 125% so far this year.