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USD/JPY softens below 150.50 on Fed rate cut bets, ongoing US government shutdown 

  • USD/JPY extends the decline to around 150.30 in Friday’s early Asian session. 
  • Fed's Powell signaled a dovish tone as US jobs remain sluggish.
  • Political jitters fuel BoJ rate hike uncertainty. 

The USD/JPY pair loses ground to near 150.30 during the early Asian session on Friday. The US Dollar (USD) weakens against the Japanese Yen (JPY) as traders assess the prospects for US rate cuts and the impact on the economy of a protracted US shutdown. The speech by the Bank of Japan’s (BoJ) Shinichi Uchida will be the highlight later on Friday. 

Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that labor market and inflation outlooks were little changed from last month, when the US central bank reduced its interest rate. Meanwhile, new Fed Governor Stephen Miran stated that the uncertainty surrounding US-China trade tensions had added risks to the US economic outlook, making the case for rate cuts more urgent. 

Fed Governor Christopher Waller noted that he is on board with another interest rate reduction at the Fed's policy meeting later this month, citing the mixed readings on the state of the job market. Dovish remarks from Fed officials drag the Greenback lower against the JPY. 

The US government shutdown has entered its 16th day. US Treasury official stated that the extended closure is costing around $15 billion per week to the US economy. A prolonged US federal shutdown might contribute to the USD’s downside in the near term. 

On the other hand, speculations that the Bank of Japan (BoJ) could delay raising interest rates further amid domestic political uncertainty might undermine the JPY and create a tailwind for the pair. BoJ’s assistant governor Seiichi Shimizu said on Thursday that the Japanese central bank must be careful when normalizing monetary policy due to uncertainty about how the economy would react to a new environment of positive interest rates. 

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.

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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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