USD/JPY weakens below 147.50 as traders bet on Fed rate cut
- USD/JPY softens to near 147.35 in Wednesday’s early Asian session.
- US Payrolls were revised down a record 911,000 in the preliminary estimate.
- Concerns over political uncertainty in Japan could weigh on the JPY and cap the pair’s downside.
The USD/JPY pair loses momentum to around 147.35 during the early Asian session on Wednesday. The US Dollar (USD) weakens against the Japanese Yen (JPY) amid speculation of a larger rate cut by the US Federal Reserve (Fed) next week. Traders brace for the release of the US Producer Price Index (PPI) inflation data, which is due later on Wednesday.
Data released by the US Bureau of Labor Statistics (BLS) on Tuesday showed that the preliminary estimate of the Current Employment Statistics (CES) national benchmark revision to total Nonfarm employment for March 2025 is -911,000, or -0.6%. This report adds to mounting pressure on the US central bank to lower interest rates and exert some selling pressure on the Greenback.
US rate futures are now pricing in nearly a 92% chance of a 25 basis points (bps) Fed rate cut later this month and an 8% odds of a 50 bps easing, according to the CME FedWatch tool.
The US Bureau of Labor Statistics will release its PPI inflation data on Wednesday ahead of the Consumer Price Index (CPI). The headline PPI is expected to show an increase of 3.3% YoY in August, while the core PPI is projected to show a rise of 3.5% YoY during the same period.
On the other hand, Japanese Prime Minister Shigeru Ishiba's resignation over the weekend fuels political uncertainty in Japan and could temporarily hinder the Bank of Japan (BoJ) from normalizing policy. This, in turn, might undermine the JPY and help limit the pair’s losses.
Ishiba stated that he will step down, following weeks of calls for his departure in the aftermath of a second national election setback, adding that he would serve as prime minister until his replacement comes up. Japanese media reported that the ruling party leadership election could be in early October.
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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