The USD/JPY pair gains momentum to a two-week high near 157.00 during the early Asian session on Friday. The Japanese Yen (JPY) remains under selling pressure against the US Dollar (USD) ahead of Japan’s snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Markets expect that a victory for Japanese Prime Minister Sanae Takaichi will lead to expanded fiscal stimulus and continue the JPY’s weakness. Takaichi said that she aims to begin implementing a two-year suspension of the 8% consumption tax on food and beverage items within fiscal 2026, starting in April. This raises concerns about Japan’s fiscal outlook amid fears of debt-funded spending.
However, the upside for the pair might be limited amid weaker-than-expected US labor market data. US job openings unexpectedly fell in December to the lowest level since 2020 and layoffs rose. Companies revealed the most job cutbacks in January since the Great Recession in 2009, while applications for US unemployment benefits rose more than forecast last week. A partial government shutdown delayed January Nonfarm Payrolls (NFP) data to February 11, which was previously scheduled for Friday.
Federal Reserve (Fed) Governor Lisa Cook said on Monday that she is more concerned about stalled progress on inflation than a weakening labor market. Her remarks signaled that she will not support another interest-rate cut until tariff-induced price pressures begin to recede.
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.
