USD/JPY drifts higher above 158.00 as Takaichi is considering calling a snap election
- USD/JPY edges higher to around 158.05 in Monday’s early Asian session.
- Japan's Takaichi is considering calling a snap election for mid-February, weighing on the Japanese Yen.
- Nonfarm Payrolls rose by 50,000 in December, weaker than expected.
The USD/JPY pair gains ground near 158.05 during the early Asian session on Monday. The Japanese Yen (JPY) weakens against the US Dollar (USD) following a report that Japan’s Prime Minister Sanae Takaichi is considering calling a snap election for parliament's lower house in the first half of February.
Reuters reported on Sunday that Japan’s Prime Minister Sanae Takaichi may call an early general election, and it could be held as early as February. This would be the first time for the conservative Takaichi to face the voters, allowing her to capitalize on the strong public approval ratings she has enjoyed since taking office in October.
Data released by the US Bureau of Labor Statistics (BLS) on Friday showed slower than expected US jobs growth, suggesting the US Federal Reserve (Fed) could hold interest rates steady later this month. Nonfarm Payrolls (NFP) in the US rose by 50,000 in December. This reading followed November's 56,000 (revised from 64,000) and came in weaker than the market expectation of 60,000.
Meanwhile, the Unemployment Rate ticked lower to 4.4% in December from 4.6% in November, while the Average Hourly Earnings climbed to 3.8% YoY in December from 3.6% in the previous reading.
Dovish Fed expectations could weigh on the Greenback against the JPY in the near term. Fed funds futures are pricing in nearly a 95% probability that the US central bank leaves interest rates unchanged at its next two-day meeting on January 27 and 28, up from 68% a month ago, the CME FedWatch tool showed.
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
FXStreet
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.
