Institutions: The Bank of Japan's "policy response function" has changed; the yen's exchange rate will be key to interest rate hikes.

A sharp weakening of the yen may prompt the Bank of Japan (BOJ) to take action, as the BOJ stated in a report that it will continue to raise interest rates based on economic, price, and financial conditions. Naomi Mukkara, a strategist at Mitsubishi UFJ Morgan Stanley Securities, said this marks a shift in the BOJ's "policy response function." In the report, the BOJ stated that foreign exchange rates are increasingly likely to influence prices, and such volatility could affect underlying inflation by altering inflation expectations. The BOJ does not directly target the yen, but if a significant depreciation of the yen accelerates price increases, the central bank may adjust its policy. (Jinshi)