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USD/JPY declines to near 153.50 on growing concerns over US government shutdown

  • USD/JPY softens to around 153.65 in Wednesday’s early Asian session.
  • The US government shutdown is set to become the longest as the latest Senate vote failed. 
  • Fears of potential intervention support the JPY, but the BoJ rate hike uncertainty might cap its upside. 

The USD/JPY pair attracts some sellers to near 153.65 during the early Asian session on Wednesday. The US Dollar (USD) edges lower against the Japanese Yen (JPY) amid growing concerns over the ongoing US government shutdown. The ADP Employment Change and the US ISM Services Purchasing Managers Index (PMI) data for October will be in the spotlight later on Wednesday. 

The US government shutdown is set to become the nation’s longest federal funding lapse ever after a short-term funding bill failed in the Senate once again. The latest effort to break the logjam, by passing a Republican-backed temporary legislation through Congress, failed in the Senate for the 14th time on Tuesday.

There are no further votes scheduled on Tuesday on the GOP’s short-term continuing resolution, and growing concerns over a prolonged shutdown could exert some selling pressure on the Greenback in the near term.

Additionally, fears of potential intervention from Japanese officials could support the JPY and act as a headwind for the pair. Japan’s Finance Minister Satsuki Katayama said on Friday that it was “important for currencies to move in a stable manner, reflecting fundamentals.” He further added that the government was “closely watching FX moves with a high sense of urgency.”

On the other hand, the uncertainty over the timing of the next Bank of Japan (BoJ) rate hike might weigh on the JPY. Even though BoJ Governor Kazuo Ueda last week signalled that a rate hike was possible as soon as December, markets remained underwhelmed by the central bank's gradual approach. Traders expect Japan's new Prime Minister Sanae Takaichi to pursue aggressive fiscal spending plans.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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