USD/JPY extends rally to seven-month high as Yen weakens on leadership transition

• USD/JPY climbs to a seven-month high above 151.00, up 0.65%.
• The Japanese Yen is under pressure as investors brace for pro-stimulus policies under incoming PM Takaichi.
• NY Fed survey shows one-year inflation expectations rising, labor-market sentiment softening

The Japanese Yen (JPY) remains under downside pressure, extending its slide against the US Dollar (USD) for a second straight day on Tuesday. The currency is undermined by expectations that incoming Liberal Democratic Party (LDP) leader Sanae Takaichi, set to become Japan’s next prime minister, will pursue a pro-stimulus agenda that could keep fiscal and monetary policy accommodative.

At the time of writing, USD/JPY is trading around 151.33, up 0.65%, climbing to its highest level in seven months since March 3, 2025.

On Tuesday, Finance Minister Katsunobu Kato reiterated the government’s readiness to act against excessive currency volatility, cautioning that sharp moves in the Yen do not reflect economic fundamentals. His remarks, however, failed to halt the selling pressure on the Japanese currency as investors remained focused on the likelihood of continued accommodative policies under the new leadership.

In the United States (US), the New York Fed’s September Survey of Consumer Expectations showed median one-year-ahead inflation expectations rising to 3.4% from 3.2%, while the five-year-ahead measure ticked up to 3.0% from 2.9%, with the three-year horizon steady at 3.0%. The survey also revealed softer labor-market sentiment, with expected earnings growth slipping to 2.4%, the lowest since April 2021, and the perceived probability of higher unemployment in a year rising to 41.1%.

Speaking on Tuesday, Fed Governor Stephen Miran stressed that private-sector data cannot fully replace official government statistics, underscoring the challenge posed by the US government shutdown, which has delayed the release of key economic indicators.

Miran said he is “more sanguine on the inflation outlook than many others” and remains optimistic that official data will be available in time for the Fed’s October meeting. He added that monetary policy should remain forward-looking and warned that keeping policy too restrictive for too long carries risks.

Looking ahead, market attention will turn to Wednesday’s releases, including Japan’s August Labor Cash Earnings and Current Account data. Meanwhile, BoJ Governor Kazuo Ueda has cancelled his scheduled Wednesday speech due to the event’s cancellation, according to Jiji Press.

In the US, investors will closely watch the release of the Fed's September Meeting Minutes, especially as the shutdown-related delays to official data releases have increased reliance on Fed communications to gauge the monetary policy outlook.