The yen surged in a dramatic turnaround, Japanese bond futures dropped, and Nikkei 225 Stock Average futures retreated after Shigeru Ishiba clinched leadership of Japan’s ruling Liberal Democratic Party.

Japan's incoming prime minister Shigeru Ishiba said on Friday the country's monetary policy will broadly remain loose, but he signalled that he won't push back against further increases in still near-zero interest rates.

Japan financial markets have stopped expecting another interest rate hike this year, after Bank of Japan was on hold last week at its policy meeting.

At least two of the Bank of Japan's nine board members saw scope to raise interest rates further, minutes of the central bank's July policy meeting showed on Thursday. But several other members warned of risks to the economy that

Political uncertainty and the surprise prominence of a reflationist-minded candidate in Japan's ruling party leadership race may add pressure on the central bank to go slow on raising interest rates further away from historic lows.

Japanese inflation rose slightly in August, with prices up 2.8 percent year-on-year, official data showed Friday, hours before the Bank of Japan was widely expected to leave interest rates unchanged.