USD/JPY steadies near 158.00 as Japan’s fiscal worries weigh on the Yen

• USD/JPY consolidates near 158.00 as Japan’s fiscal worries keep the Yen on the defensive.
• Excessive weakness in the Yen leave markets alert to intervention risk.
• The US Dollar steadies after softer geopolitical rhetoric from Donald Trump.

The Japanese Yen (JPY) is little changed against the US Dollar (USD) on Wednesday, as rising political and fiscal concerns in Japan continue to weigh on sentiment. Meanwhile, a modest rebound in the Greenback is limiting the pair’s downside. At the time of writing, USD/JPY is trading around 158.15.

The Yen remains under sustained selling pressure after Prime Minister Sanae Takaichi said she will dissolve the lower house on Friday and call a snap general election for February 8. Her proposal to suspend the 8% food consumption tax for two years has revived fears about Japan’s already heavy public debt, pushing Japanese government bond (JGB) yields sharply higher.

The recent bond market turmoil, along with the Bank of Japan’s (BoJ) gradual pivot toward policy normalization, is fueling fears of a potential yen carry trade unwind. While rising domestic yields would normally support the Japanese currency, this time the move reflects fiscal stress, making investors wary of Japanese assets.

Finance Minister Satsuki Katayama said on Tuesday that Japan’s fiscal position remains stable, urging calm after the sharp sell-off in government bonds and warning investors not to overreact. Meanwhile, Japanese authorities remain vigilant against excessive one-sided moves in the Yen, keeping the risk of intervention firmly on the table.

Attention now turns to the Bank of Japan’s interest rate decision on Friday, where markets widely expect the central bank to keep interest rates unchanged after December’s hike. Investors will watch the BoJ’s statement and outlook closely for any signals on the timing of the next rate increase later this year, especially as bond market volatility and political uncertainty continue to build.

In the United States, President Donald Trump’s disruptive trade policies and growing interference with the Federal Reserve (Fed) are adding to investor unease, keeping markets cautious. However, Trump softened his stance on Greenland, saying during his speech at the World Economic Forum in Davos that he would not use force to acquire the territory, helping the US Dollar stabilize after coming under renewed selling pressure earlier this week.

Looking ahead, traders await the delayed Personal Consumption Expenditures (PCE) inflation data and the annualized third-quarter Gross Domestic Product (GDP) figures due on Thursday.