The Bank of Japan (BOJ) kept interest rates steady today to send the yen to a 13-month low and spark speculation the bank had succumbed to government pressure to hold off on a tightening.
The BOJ said its board voted 6-3 in favour of keeping rates at 0.25 per cent - the lowest in the developed world.
As the market swirled with talk of possible government influence, BOJ Governor Toshihiko Fukui responded by saying saying the central bank had made its own decision.
He said the BOJ judged it prudent to watch for more data given that indicators had been mixed. He added that consumption was in a rising trend but the pace was only moderate.
Japanese media, in the run-up to the meeting, had reported the BOJ was unlikely to raise rates. Many in the market suspected the government of trying to sway the central bank so that it would not potentially damage the economy with a hasty move.
The yen, which has suffered as investors have dumped it in favour of higher-yielding currencies, slipped to 121.33 per dollar, its weakest since late 2005.
By earlier this morning, it was at 121.27 and it has shed more than 5 per cent against the dollar in the past five weeks.