USD/JPY dips toward 148.50 as US Dollar declines on government shutdown risks
- USD/JPY loses ground as traders adopt caution amid concerns over a possible US government shutdown.
- A shutdown could begin on Wednesday if President Trump and congressional leaders fail to reach a deal on Monday.
- Japan’s October 4 LDP leadership election could postpone the BoJ’s next rate hike if a dovish candidate wins.
USD/JPY extends its losses for the second successive session, trading around 148.70 during the early European hours on Monday. The pair depreciates as the US Dollar (USD) faces challenges due to concerns over the possible shutdown of the United States (US) government.
US President Donald Trump is scheduled to meet congressional leaders on Monday to discuss government funding. The shutdown could begin on October 1 in case of no deal, which will also coincide with new tariffs on trucks, pharmaceuticals, and more. The standoff could also delay the September payrolls report and other key data, per Reuters.
The USD/JPY pair depreciates as the Greenback loses ground after the US August inflation report boosted the likelihood that the US Federal Reserve (Fed) will likely deliver another interest rate cut in October. Markets are now pricing in nearly an 88% chance of a Fed rate cut in October and a 65% possibility of another reduction in December, according to the CME FedWatch Tool.
In Japan, traders will likely observe the Bank of Japan (BoJ) Summary of Opinions and August Retail Trade data due on Tuesday. BoJ July minutes signaled policymakers remain open to further rate hikes if growth and inflation stay on track.
The Japanese Yen (JPY) may struggle amid political uncertainty in Japan. Japan's Liberal Democratic Party (LDP) leadership election on October 4 could delay the BoJ’s next rate hike if a dovish candidate prevails.
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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