USD/JPY slips as Greenback weakens, Fed rate cut bets hinge on delayed US data

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The Japanese Yen (JPY) strengthens against the US Dollar (USD) on Thursday, with USD/JPY snapping a four-day winning streak as the Greenback extends its recent slide. At the time of writing, the pair is trading near 154.35, hovering just below the nine-month high of 155.05 reached on Wednesday.

USD/JPY edges lower, though the pair remains near a nine-month high.
US Dollar remains under pressure as traders gear up for a wave of delayed US economic data that could guide December Fed bets.
Japan’s PM Takaichi meets BoJ Governor Ueda for the first time, reaffirming closer policy coordination.

The upbeat tone following the deal to end the United States (US) government shutdown has done little to lift the Dollar. Instead, renewed caution is building ahead of the incoming wave of delayed US economic data, which could shape expectations for a potential Federal Reserve (Fed) rate cut in December.

White House Senior Adviser Kevin Hassett told Fox News that the September nonfarm payrolls print is likely to arrive next week, saying the report is “already cooked.” Hassett also warned that the shutdown could shave 1.5% off Q4 GDP, underscoring the economic drag from the prolonged government closure.

As traders gear up for the upcoming batch of delayed US data, the Federal Reserve’s cautious stance is keeping December rate-cut expectations uncertain. While the labor market is showing signs of cooling, policymakers continue to highlight that inflation remains the primary concern, limiting room for immediate easing.

Boston Fed President Susan Collins reiterated that there is a “relatively high bar for additional easing in the near term,” stressing that the Committee must be confident inflation is on a durable path back to 2% before considering further cuts. San Francisco Fed President Mary Daly echoed this view, noting that the labor market “has slowed quite a bit” and inflation is easing but “still stubborn,” adding it is “premature to say definitely a cut or no cut in December.” Minneapolis Fed President Neel Kashkari added to the cautious tone, saying he sees “mixed signals” in the economy and warning that inflation remains “too high at 3%.”

However, any meaningful recovery in the Yen remains limited by Japan’s expansionary fiscal stance and the Bank of Japan’s (BoJ) cautious approach to policy normalization. That said, the market is increasingly weighing the prospect of intervention as USD/JPY trades near sensitive levels.

Adding to the focus, Prime Minister Sanae Takaichi held her first formal meeting with BoJ Governor Kazuo Ueda on Thursday. The PM stated that “we will continue to request that the BoJ Governor provides regular reports to this Council on Economic and Fiscal Policy. The government and the BoJ will continue to work together to advance the national economy.”

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.