 Karota says U.S. rate hikes won't necessarily mean weaker yen. Bank of Japan Governor Haruhiko Karota said interest rate increases by the Federal Reserve won't necessarily cause the yen to weaken, saying various factors affect the currency market. In a sequence of remarks Thursday that appeared to trigger a strengthening of the yen, Karota also said the Baj would handle any eventual exit path well, though it wouldn't be easy. Fed rate hikes may affect the value of U.S. government bonds and stock prices, Karota said in response to questions in parliament. So I think it's not necessarily the case that Japan's capital will flow into the U.S. continuously, causing the yen to weaken. The governor also said there was no single decisive factor that determines foreign exchange rates. The yen quickly strengthened to 126.66 against the dollar from an earlier level of 127.18. The market reaction to comments that were essentially a repetition of his views, suggests nervousness among investors after Japan's inflation reached the Baj's target level of 2%, especially following hawkish turns by other major central banks. With inflation rates at 2%, Karota's remarks are under intense scrutiny by the market, said Hideo Kumano, executive economist at Daiichi Life Research Institute. Karota previously caused a weakening of the yen with his remarks but the comments today didn't follow the same direction. That's probably why the yen gained. His key inflation gauge rose 2.1% in April, according to a government report last week. The Baj chief showed no sign of celebration, though. Instead he repeated his view that the current cost-push inflation isn't sustainable, and monetary easing needs to continue. With the market increasingly seeing U.S. Treasury yields as having peaked out for now, investors may be testing to see where the yen will settle, according to Kumano. Analysts are increasingly thinking the Japanese currency won't move as much as previously expected and that the 140 yen mark to the dollar level won't happen as once feared, he said.