The dollar fell against the yen today after Japan’s central bank chief said the government will raise interest rates when signs of a consumer-driven economic recovery appear. Tokyo stocks closed lower.

The dollar bought 107.86 yen today, down 1.30 yen from its level of 109.16 yen late Thursday in Tokyo and also below its late New York level of 108.70 yen overnight. The greenback ranged between 107.62 yen and 108.83 yen during the day.

The 225-issue Nikkei Stock Average fell 173.46 points, or 1.03 percent, to close at 16,858.17. On Thursday, the average closed down 372.40 points, or 2.14 percent.

In currency dealings, the dollar fell against the yen after Bank of Japan Governor Masaru Hayami said an end to Japan’s fears of deflation is approaching, a condition that the central bank says is necessary to raise interest rates.

If income conditions “look set to improve, then we could say that a self-sustaining economic recovery and an end to deflationary worries would be at hand,” Hayami said at a regular press conference.

Higher interest rates would likely boost the value of the yen as investors sell dollars and other currencies to buy yen-denominated bonds and other assets.

Also, Taichi Sakaiya, head of Japan’s Economic Planning Agency, said today that the nation’s improved economic outlook may keep the government from spending some $4.64 billion earmarked for public works, another sign of Tokyo’s confidence that the economy is recovering.

In other currencies, the euro was traded at 96.28 yen, down from 97.42 yen late Thursday in Tokyo.

In stock trading, shares were hit after the Nasdaq composite index in New York lost 106.25 points to 3,538.71 at Thursday’s close. The Dow Jones industrial average, however, gained 7.54 points to close at 10,777.28.

On Tuesday, the U.S. Federal Reserve raised short-term U.S. interest rates a half percentage point, the sixth such hike since last June, in an effort to slow the supercharged economy.

Higher interest rates are often considered a negative factor in stock markets as they threaten corporate profits by making it more expensive to borrow money.

Traders in Tokyo said high technology issues would continue to go through a correction phase, further pushing down the Nikkei index.

NTT DOCOMO, Japan’s biggest mobile phone maker, dropped $2,119 to $28,750. Sony fell $6.08 to $99.80, and Toyota Motor declined 92 cents to $48.29.

Overall, 627 issues on the Tokyo Stock Exchange’s first section rose, 619 declined and 147 closed unchanged from Thursday.

The broader Tokyo Stock Price Index of all issues listed on the first section fell 27.77 points, or 1.73 percent, to close at 1,578.37. The TOPIX closed down 30.31 points, or 1.85 percent, the day before.

The yield on the benchmark 10-year Japanese government bond fell 0.01 point from Thursday to 1.7150 percent. Its price rose 0.09 point to 100.73.