Why is the Japanese Yen flat despite a modestly weaker US Dollar?

With no clear directional bias, USD/JPY continues to fluctuate between 157.00 and 158.00.

Tokyo remains committed to supporting the Yen, Finance Minister Katayama reaffirmed on Monday.

Caution ahead of Tuesday's US midterm elections keeps the US Dollar under pressure.

Directionless trading persists in the Japanese Yen (JPY) on Monday, with the currency failing to benefit from modest US Dollar (USD) weakness as markets prepare for the US midterm elections. Around 157.00, USD/JPY remains confined to its earlier trading ranges. Uncertainty over the timing of the next interest rate increase has grown after the Bank of Japan (BoJ) held monetary policy steady on Friday.

The Yen has seen little response to comments earlier on Monday from Japanese Finance Minister Satsuki Katayama. She reaffirmed Tokyo's readiness to act against disorderly currency market moves and pointed to its agreement with the US to curb excessive JPY weakness.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Friday's Bank of Japan policy decision and Governor Ueda's press release prompted modest losses in the JPY. Although the widely anticipated decision kept benchmark interest rates at 1.25%, Ueda made further increases conditional on developments in FX, IA and the Middle East conflict. This raised questions over a December rate hike and weakened speculative support for the JPY.

How Are Softer Fed Signals and US Political Risks Weighing on the Dollar?

Softer policy signals from the Fed, alongside mounting political uncertainty, explain the US Dollar's recent fading momentum, according to analysts at MUFG. In a note, MUFG says: “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,” while also cautioning 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.”

MUFG also attributes some of the Dollar's diminished appeal to market developments, noting that “the Fed’s policy update was less hawkish than expected, and AI-related US equities came under renewed selling pressure,”. The analysts point out that “the 2-year US Treasury yield has fallen by almost 40bps from the high at the end of September,” and add that “market participants will be watching closely this week’s Quarterly Refunding Announcement from the US Treasury,”. That announcement could have further implications for the Dollar and broader interest rate expectations.

US Midterm Elections: Key Questions Answered

Which offices are contested in US midterm elections?

Held at the midpoint of a president's four-year term, US midterms are federal elections in which voters elect all 435 House of Representatives members and roughly one-third of the Senate. Many states also elect governors and other state and local officials.

On what date will the 2026 midterms take place?

Voters go to the polls on Tuesday, 3 November 2026. Under federal law, Election Day falls on the Tuesday following November's first Monday. Many states have already begun early voting and postal voting.

What makes the US midterm elections significant?

Control of both chambers of Congress during the final two years of President Donald Trump's term is determined by these elections. Setting the legislative agenda and selecting committee leaders fall to the majority party. In the Senate, that party also controls the confirmation of judges and senior officials.

Will voters elect a president in the 2026 midterms?

No. Presidential elections take place every four years, with the next scheduled for November 2028. Often regarded as a referendum on the incumbent president's party, midterms have historically tended to cost that party seats in the House.

What could the 2026 midterm results mean for the US dollar?

A limited, temporary US Dollar reaction, rather than a sustained trend, is what most analysts anticipate. Markets have partly factored in a divided Congress, the widely held base case, while Treasury yields could respond more sharply to the outcome. Results that increase expectations for fiscal stimulus generally support both yields and the US Dollar; legislative deadlock that constrains fresh spending can weigh on both. Funding disputes or debt-ceiling stand-offs may briefly boost safe-haven demand for the Dollar. Over a six-to-twelve-month horizon, however, economic growth and Federal Reserve policy carry more weight than the election result.

What has been the stock market pattern around midterms?

Historically, weakness in US equities ahead of midterms has given way to strength afterwards. Looking at the period since 1950, the S&P 500 has recorded gains 12 months after every midterm election: 19 out of 19, averaging about 15%. Analysts attribute this pattern to the reduction in uncertainty after results become clear. Past performance does not guarantee future returns, and some strategists caution that elevated valuations in 2026 could challenge that run.

Why might markets favour a divided Congress?

By reducing the likelihood of sweeping tax, spending and regulatory changes, legislative gridlock has often made divided government welcome in markets. With a Republican president in office, the S&P 500 has historically performed well in the years after midterms that divide control of Congress. Short-term volatility can nevertheless increase around funding deadlines, debt-ceiling disputes and congressional investigations.