The USD/JPY pair experienced a notable decline, dipping to around 153.05 during the early Asian session on Friday. This shift reflects ongoing selling pressure on the US Dollar as the protracted US government shutdown continues to unfold, now reaching a record duration without any resolution in sight. Investors are also anticipating the release of the flash Michigan Consumer Sentiment survey later today, which could further influence market dynamics.
The current government shutdown commenced on October 1 after congressional leaders failed to reach an agreement over funding negotiations, leading to mounting anxiety regarding its extended impact on the economy. The Senate’s reluctance to vote on a House-passed proposal to reopen the government has exacerbated the uncertainty surrounding the USD. This measure has notably failed to advance in voting for the 14th time as of Tuesday.
Echoing the severity of the situation, Alec Phillips, chief political economist at Goldman Sachs, stated that the current shutdown is likely to have the most significant economic consequences observed in past shutdowns. Further complicating the economic outlook, a recent Challenger report revealed that over 150,000 jobs were cut in October, marking the largest monthly reduction in over two decades. These developments have prompted speculations that the Federal Reserve may lower interest rates in response during their upcoming December meeting, putting additional downward pressure on the USD.
In contrast, insights from the Bank of Japan (BoJ) unveiled during its September meeting suggest a growing inclination among policymakers toward interest rate increases, with two members advocating for an immediate move. This hawkish stance may lend some short-term support to the Japanese Yen. However, uncertainties regarding the timing of any potential moves by the BoJ continue to loom, creating mixed sentiment that could see the Yen face downward pressure as well.
Analysts predict that Japan’s newly appointed Prime Minister, Sanae Takaichi, will likely pursue expansive fiscal spending strategies while resisting any tightening of monetary policy. Such policies could further shape the economic landscape affecting both domestic and global markets.
The Japanese Yen is recognized as one of the most actively traded currencies worldwide, influenced by various factors including the performance of the Japanese economy, the BoJ’s policy direction, the yield differential between Japanese and US bonds, and overall market sentiment. The BoJ’s historically ultra-loose monetary policy from 2013 to 2024 resulted in a notable depreciation against other currencies due to the widening divergence in policy compared to other major central banks.
Recently, slight shifts in the BoJ’s ultra-loose approach, particularly its decision to gradually unwind this policy, have begun to lend some support to the Yen. However, the Yen is typically regarded as a safe-haven asset, drawing investor interest during times of market turmoil, which further stabilizes its value against riskier currencies. The ongoing economic and political developments will continue to shape currency valuations, particularly in relation to the US Dollar.
