USD/JPY holds near nine-month highs as USD strengthens

• JPY weakens as Japan’s expansionary fiscal stance continues to pressure the currency.
• US Dollar remains firm on stronger economic data and fading hopes of a December rate cut.
• Markets await delayed US data, with the September NFP report in focus this Thursday.

The Japanese Yen (JPY) weakens against the US Dollar (USD) on Monday as Japan’s expansionary fiscal stance under Prime Minister Sanae Takaichi continues to weigh on the currency. The government’s push for large-scale spending and the Bank of Japan’s (BoJ) reluctance to move toward policy tightening keep the Yen under steady pressure.

At the time of writing, USD/JPY is trading near 155.19, its highest level in more than nine months, with a firm US Dollar adding to the upward bias.

The Greenback remains broadly supported as traders trim bets on a December interest-rate cut following a round of cautious remarks from Federal Reserve (Fed) officials last week. Policymakers have signaled little urgency to ease policy, stressing that inflation risks remain in place even as the labor market shows signs of cooling.

Adding to the USD’s strength, the latest NY Empire State Manufacturing Index for November surprised to the upside at 18.7, beating expectations of 6.0 and rising sharply from the prior 10.7 reading. US Construction Spending for August also surprised slightly to the upside, rising 0.2% against expectations for a 0.1% decline, matching the prior month’s 0.2% increase.

Meanwhile, Fed Vice Chair Philip Jefferson delivered slightly dovish but cautious remarks on Monday, noting rising risks to employment and a gradual cooling in the labor market, in contrast to the hawkish messaging from other Fed officials last week. He said policymakers need to proceed slowly as rates approach neutral, while warning that it is still unclear how much government data will be available ahead of the next meeting.

Attention now turns to the release of US economic data delayed by the government shutdown, with the September Nonfarm Payrolls (NFP) report in focus on Thursday.

Earlier in the day, Japan’s preliminary Q3 Gross Domestic Product (GDP) data offered little support to the Yen with the economy contracting 0.4% QoQ and -1.8% annualized, both better than forecast. However, the figures reinforced the view that domestic momentum remains soft, keeping investors focused on the government’s aggressive fiscal stance.