USD/JPY steadies above 152.40 ahead of US consumer confidence data
- The US dollar remains firm above 152.40 on track to a 3.6% weekly rally.
- Growing political uncertainty in Japan has hit the Yen severely this week.
- In the US, consumer sentiment is expected to have deteriorated further in October.
The US Dollar stands tall above 152.40 against the Japanese Yen, consolidating gains after rallying beyond 3.5% this week. Growing political uncertainty following the victory of Sanae Takaichi at the ruling LDP party vote this week has triggered a sharp yen sell-off this week.
Investors remain concerned that Takaichi, an aide of former PM Shinzo Abe, might restore the Abenomics playbook, increasing fiscal spending and hampering the BoJ’s monetary policy tightening plans.
Japan's ruling coalition, in danger
In this context, the leader of the Komeito party, Tetsuo Saito, threatened to leave the ruling coalition with the LDP earlier on Friday as, he said, there is a deep disagreement with the LDP “on issues involving money, politics.”
Somewhat earlier, Japan’s Finance Minister Katsunobu Kato complained about one-sided rapid currency movements and affirmed that the Japanese authorities will monitor for excessive market fluctuations and disorderly moves, in a veiled threat of intervention.
The US Dollar, on the other hand, remains firm against its main peers, despite dovish comments from San Francisco Fed President, Mary Daly, who has called for further interest rate cuts as she considered that the deterioration of the labour market is worrisome.
Later today, the US Michigan Consumer Sentiment Index is expected to give some more ammunition for Fed doves. The index is foreseen to have declined for the third consecutive week, to a level of 54.2 in October from 55.1 in September, with consumers wary about the poor job prospects.
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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