USD/JPY tumbles to near 153.00 as US government shutdown woes persist

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The USD/JPY pair slumps to near 153.05 during the early Asian session on Friday. The US Dollar (USD) faces some selling pressure as the US government shutdown extends further, hitting a record with still no solution in sight.

USD/JPY falls to around 153.05 in Friday’s early Asian session.
US-based employers cut more than 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years.
The BoJ rate hike uncertainty might weigh on the Japanese Yen.

The government shuttered on October 1 after Congress failed to break a stalemate over funding negotiations. Concerns over a prolonged US government shutdown and uncertainty continue to undermine the Greenback against the JPY. The Senate is not currently set to vote on a House-passed measure to reopen the government on Thursday, after it failed to advance for the 14th time on Tuesday.

“The current shutdown looks likely to have the greatest economic impact of any shutdown on record,” Alec Phillips, chief political economist at Goldman Sachs, wrote in a recent report.

Furthermore, the Challenger report showed that companies cut over 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years. The announcement prompted the Federal Reserve (Fed) to lower interest rates at their December meeting and weigh on the USD.

Minutes of the Bank of Japan’s (BoJ) September meeting showed on Wednesday that a growing number of policymakers at the central bank believed that conditions were falling into place for interest rates to rise, with two members advocating an immediate increase. The hawkish BoJ minutes could provide some support to the JPY in the near term.

However, the uncertainty about the timing of the next Bank of Japan (BoJ) move could drag the JPY lower and act as a tailwind for the cross. Analysts expect Japan's new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and resist policy tightening.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.