Japanese Yen treads water despite moderate US Dollar weakness
- USD/JPY keeps wavering between 157.00 and 158.00, lacking a clear bias.
- Finance Minister Katayama reiterated Tokyo's commitment to support the Yen on Monday.
- The US Dollar remains on its back foot, with investors awaiting Tuesday's US midterm elections.
The Japanese Yen (JPY ) keeps looking for direction, unable to take advantage of a moderate US Dollar (USD) weakness on Monday, as markets brace for the US midterm elections. The USD/JPY keeps hesitating within previous ranges around 157.00 as the Bank of Japan (BoJ) cast doubt on the timing of the next interest rate hike after keeping monetary policy unchanged on Friday.
Earlier on Monday, the Japanese Finance Minister, Satsuki Katayama, reiterated that Tokyo is ready to respond if currency market movements become disorderly, and reminded of the agreement with the US to stem excessive JPY weakness. The impact of these comments on the Yen, however, has been minimal.
On Friday, the JPY reacted with moderate declines to the Bank of Japan’s monetary policy decision and Governor Ueda's press release on Friday. The BoJ left its benchmark interest rates unchanged at 1.25% as widely expected, but Ueda conditioned next interest rate hikes on developments in FX, IA, and the Middle East conflict, casting doubt on a December rate hike, and weighing on speculative support for the JPY.
Dollar momentum fades as Fed tone softens and US political risks loom
Regarding the USD, Analysts at MUFG observe that the US Dollar’s recent loss of momentum is being driven by a combination of softer policy signals from the Fed and rising political uncertainty. “A damaging defeat for the Republicans could put a dampener on US dollar strength, but we don’t expect it to be a game changer on its own,” says MUFG in a note, also warning that it “would limit room for further fiscal stimulus and could increase market attention on the potential for less market-friendly policies beyond the current Presidency.”
On the market side, MUFG points out that “the Fed’s policy update was less hawkish than expected, and AI-related US equities came under renewed selling pressure,” which has brushed off some of the US Dollar's shine. They highlight that “the 2-year US Treasury yield has fallen by almost 40bps from the high at the end of September,” and state that “market participants will be watching closely this week’s Quarterly Refunding Announcement from the US Treasury,” which could further influence Dollar dynamics and broader rate expectations.
US midterm elections FAQs
The US midterm elections are the federal elections held halfway through a president's four-year term. Voters choose all 435 members of the House of Representatives, about one-third of the Senate, and, in many states, governors and other state and local officials.
Election Day is Tuesday, November 3, 2026. Federal law sets it as the Tuesday after the first Monday in November. Early voting and mail voting are already under way in many states.
They decide which party controls each chamber of Congress for the last two years of President Donald Trump's term. The majority party sets the legislative agenda, chooses committee leaders and, in the Senate, controls confirmations of judges and senior officials.
No. The president is elected every four years; the next presidential election is in November 2028. Midterms are often seen as a referendum on the sitting president's party, which historically tends to lose House seats.
Most analysts expect a modest, short-lived reaction in the US Dollar rather than a lasting trend. A divided Congress is widely seen as the base case and is partly priced in. Treasury yields may react more noticeably to the results. Outcomes that raise expectations of fiscal stimulus tend to lift yields and the US Dollar, while gridlock that limits new spending can pull both lower. Political friction, such as funding or debt-ceiling standoffs, can also briefly lift the Dollar as a safe haven. Over six to twelve months, growth and Federal Reserve policy matter more than the vote.
US stocks have historically been weak before midterms and strong after them. Since 1950, the S&P 500 has been higher 12 months after every midterm election, 19 out of 19, with an average gain of about 15%. Analysts link the pattern to uncertainty fading once results are known. Past performance does not guarantee future returns, and some strategists note that high valuations in 2026 could test the streak.
Markets have often welcomed a divided government because gridlock makes sweeping changes to taxes, spending and regulation less likely. Under a Republican president, the S&P 500 has historically done well in years following midterms that split control of Congress. The risks are funding deadlines, debt-ceiling fights and congressional investigations, which can add short-term volatility.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
