USD/JPY extends the decline to near 147.00 as US government shutdown weighs on US Dollar
- USD/JPY tumbles to around 147.05 in Thursday’s early Asian session.
- US private sector payrolls declined by 32,000 in September.
- Uncertainty surrounding the US government shutdown weighs on the US Dollar.
The USD/JPY pair extends its downside to near 147.05 during the early Asian session on Thursday. The US Dollar (USD) weakens against the Japanese Yen (JPY) as traders assess the US federal government shutdown, which in turn reignited uncertainty in the global markets ahead of the key US data releases.
Data released by the Automatic Data Processing (ADP) on Wednesday showed that private sector employment in the US declined by 32,000 in September and annual pay was up 4.5% on a yearly basis. This figure followed the 3,000 decrease (revised from a 54,000 increase) reported in August and came in below the market expectation of 50,000. The report boosts expectations that the Federal Reserve (Fed) will cut interest rates two more times this year, which undermines the Greenback.
US rate futures have priced nearly 50 basis points (bps) of cuts this year following the ADP data, from about 43 bps of easing on Tuesday, with a market-implied possibility of around 99% for an October rate move, according to LSEG data.
The US government entered its first shutdown in almost seven years after lawmakers failed to reach a deal on government funding. The shutdown could delay the release of the Friday Nonfarm Payrolls (NFP) report. US President Donald Trump also threatened to use the shutdown to cut federal employees.
On the other hand, the prospect that the Bank of Japan (BoJ) will stick to its policy normalization path and hike interest rates in October provides some support to the JPY. Ongoing geopolitical tensions and the US government shutdown also boost the safe-haven flows, underpining the JPY.
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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