USD/JPY gains traction above 148.00 as Japan’s PM Ishiba to step down
- USD/JPY gathers strength to near 148.30 in Monday’s early Asian session.
- Japan’s PM said he will step down after an election setback.
- US Nonfarm Payrolls increased by 22,000 in August, weaker than expected.
The USD/JPY pair gains momentum to around 148.30 during the early Asian session on Monday. The Japanese Yen (JPY) weakens against the US Dollar (USD) after Japan’s Prime Minister Shigeru Ishiba’s resignation raised worries over political uncertainty in Japan. Japan’s Gross Domestic Product (GDP) for the second quarter (Q2) will be released later on Monday.
Ishiba announced Sunday he will step down as leader of the world’s fourth-largest economy amid growing political discord within his party. Ishiba further stated that he would serve as prime minister until his replacement comes up.
His resignation will trigger a leadership competition that may raise investor concerns, and his departure is likely to fuel uncertainty among investors over the coming weeks. Traders will closely monitor the developments surrounding Japanese politics. Japanese media reported that the ruling party leadership election could be in early October.
On the other hand, the US August Nonfarm Payrolls (NFP) report added to recent signs of labor market weakening and likely kept the Federal Reserve (Fed) on track for a widely anticipated interest rate cut later this month. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that the US NFP rose by 22,000 in August. This figure followed the 79,000 increase (revised from 73,000) recorded in July and was below the market consensus of 75,000.
Meanwhile, the Unemployment Rate ticked higher to 4.3% August versus 4.2% prior. Average Hourly Earnings increased 0.3% MoM in August, in line with expectations. Traders in the futures markets raised the probability of a quarter percentage point Fed rate cut to 100% and went even further, pricing in a 12% chance of a half-point move, according to the CME FedWatch tool.
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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