The Japanese Yen (JPY) faced a reversal on Thursday, ending its four-day winning streak against the US Dollar (USD) as the currency pair USD/JPY edged higher during the American trading session. As of the latest updates, the exchange rate hovered near 147.25, reflecting a modest increase of approximately 0.12% during the day. This uptick in the Greenback appears primarily technical, driven by short-covering and profit-taking following a decline to a one-week low.
Investors seem to be adopting a cautious stance amid ongoing political uncertainties in Washington, particularly in light of the US government shutdown that looms larger with each passing day. Economic advisers from the Biden administration have stressed that an extended shutdown could inflict significant harm on economic growth. A memo from the White House, reported by Politico, indicated that the country’s GDP could shrink by about $15 billion on a weekly basis while the government remains closed. This prolonged deadlock also poses the risk of pushing an additional 43,000 individuals into unemployment over the course of a month.
Meanwhile, the outlook for the Dollar remains shadowed by increasing expectations for further monetary policy easing from the Federal Reserve (Fed). On Wednesday, disappointing ADP employment data fueled speculation about potential rate cuts, leading markets to nearly fully anticipate a 25 basis-point reduction during the upcoming October FOMC meeting. The situation is compounded by the uncertainty surrounding key economic indicators, as the ongoing shutdown threatens to delay the release of influential data such as Friday’s Nonfarm Payrolls (NFP) report and the September Consumer Price Index (CPI), which is scheduled for October 15.
On the Japanese front, political dynamics are also adding to the uncertainty, as the ruling Liberal Democratic Party (LDP) is set to select a new leader this weekend, a choice that will be pivotal for determining the country’s next prime minister.
In the absence of the anticipated Nonfarm Payrolls data on Friday, traders are expected to focus closely on developments surrounding the US government shutdown for further direction. Additionally, the Japanese economic calendar for Friday will include the August Unemployment Rate and the September Jibun Bank Services PMI, with comments from Bank of Japan (BoJ) Governor Kazuo Ueda likely to provide crucial insights regarding future policy directions.
