USD/JPY hit an eight-month high as fiscal concerns and central bank outlook weighed on the yen
2025-10-10 11:28:43
Despite the overall strength of the US dollar, USD/JPY fell slightly during Asian trading on Friday (October 10) after hitting a new high of 153.27 against the Japanese yen since February 13, though downside is limited. Market participants generally predict that following the unexpected outcome of the Liberal Democratic Party leadership election, new leader Sanae Takaichi may implement more expansionary fiscal policies, which could further delay the Bank of Japan's monetary policy tightening process. This has been the key reason for the yen's continued decline since the beginning of this week.
However, driven by the dual forces of inflationary stickiness and economic resilience, market expectations persist for another Bank of Japan rate hike this year. This expectation, coupled with weak stock market performance, is providing some support for the safe-haven yen. Meanwhile, the US dollar has consolidated its weekly gains to its highest level since early August, somewhat limiting the upside potential of the USD/JPY pair.
Sanae Takaichi's unexpected victory in Saturday's ruling Liberal Democratic Party leadership election sparked concerns about Japan's fiscal health and dampened expectations of an immediate Bank of Japan rate hike, fueling speculation of a more expansionary fiscal policy.
Sanae Takaichi is seen as a supporter of former Prime Minister Shinzo Abe's economic policies, which advocated massive fiscal spending and monetary stimulus to support the Japanese economy. She is expected to oppose any further tightening by the Bank of Japan, a key driver of the yen's broad weakness since the start of this week.
Although Japan's inflation has reached or exceeded the central bank's 2% target for three consecutive years and the economy grew for a fifth consecutive quarter in the three months to June, recent comments from Sanae Takaichi's economic advisers, such as Etsuro Honda and Takuji Aida, suggest the new prime minister may tolerate another Bank of Japan rate hike in December or January.
It is worth noting that Sanae Takaichi made it clear that she does not want to cause excessive depreciation of the local currency, which provides a respite for yen bulls in the Asian session on Friday.
The US dollar index hit a more than two-month high of 99.55 on Thursday, mainly supported by ongoing political turmoil in Japan and France. Dollar bulls seemed undeterred by growing expectations of two more interest rate cuts by the Federal Reserve this year, as well as concerns that a prolonged US government shutdown could hit the economy.
The US government shutdown is now in its second week, and with no progress on a funding bill, the Senate on Thursday rejected a competing bill for the seventh time. The shutdown is expected to last at least until next week before the Senate reconvenes on Tuesday.
The University of Michigan's consumer confidence index, due later this week, will be in focus on Friday, while key Federal Open Market Committee member speeches will also guide the dollar and provide trading direction for USD/JPY, which is on track for a strong weekly gain and its highest weekly close since late January.
The USD/JPY pair closed above the 153.00 mark on the previous trading day. In addition, it had previously effectively broken through the key resistance level of 151.00, providing technical support for further upward movement of the exchange rate.
However, the daily relative strength index (RSI) has shown a slightly overbought state, which has curbed the enthusiasm of bulls to open new positions.
Despite this, the overall technical pattern suggests that the path of least resistance for the exchange rate remains bullish.
On the downside, any technical pullback to around 152.60-152.55 could be seen as a buying opportunity. This would help build downside support around the 152.00 round number.
On the upside, further gains could see resistance near the 153.70-153.75 area, followed by a move above the psychologically important 154.00 level. A break above this level could accelerate USD/JPY's upward trajectory, pushing it towards the 154.70-154.80 area (corresponding to the swing high on February 11th), and potentially reclaiming the crucial 155.00 level.
(USD/JPY daily chart, source: Yihuitong)
At 11:28 Beijing time, the US dollar was trading at 152.82/83 against the Japanese yen.
However, driven by the dual forces of inflationary stickiness and economic resilience, market expectations persist for another Bank of Japan rate hike this year. This expectation, coupled with weak stock market performance, is providing some support for the safe-haven yen. Meanwhile, the US dollar has consolidated its weekly gains to its highest level since early August, somewhat limiting the upside potential of the USD/JPY pair.
The yen's short-term dominance continues, and the high-market policy may delay the Bank of Japan's interest rate hike
Sanae Takaichi's unexpected victory in Saturday's ruling Liberal Democratic Party leadership election sparked concerns about Japan's fiscal health and dampened expectations of an immediate Bank of Japan rate hike, fueling speculation of a more expansionary fiscal policy.
Sanae Takaichi is seen as a supporter of former Prime Minister Shinzo Abe's economic policies, which advocated massive fiscal spending and monetary stimulus to support the Japanese economy. She is expected to oppose any further tightening by the Bank of Japan, a key driver of the yen's broad weakness since the start of this week.
Although Japan's inflation has reached or exceeded the central bank's 2% target for three consecutive years and the economy grew for a fifth consecutive quarter in the three months to June, recent comments from Sanae Takaichi's economic advisers, such as Etsuro Honda and Takuji Aida, suggest the new prime minister may tolerate another Bank of Japan rate hike in December or January.
It is worth noting that Sanae Takaichi made it clear that she does not want to cause excessive depreciation of the local currency, which provides a respite for yen bulls in the Asian session on Friday.
The US dollar index hit a more than two-month high of 99.55 on Thursday, mainly supported by ongoing political turmoil in Japan and France. Dollar bulls seemed undeterred by growing expectations of two more interest rate cuts by the Federal Reserve this year, as well as concerns that a prolonged US government shutdown could hit the economy.
The US government shutdown is now in its second week, and with no progress on a funding bill, the Senate on Thursday rejected a competing bill for the seventh time. The shutdown is expected to last at least until next week before the Senate reconvenes on Tuesday.
The University of Michigan's consumer confidence index, due later this week, will be in focus on Friday, while key Federal Open Market Committee member speeches will also guide the dollar and provide trading direction for USD/JPY, which is on track for a strong weekly gain and its highest weekly close since late January.
The daily relative strength index (RSI) shows that USD/JPY is slightly overbought and may enter a period of consolidation before resuming its upward trend.
The USD/JPY pair closed above the 153.00 mark on the previous trading day. In addition, it had previously effectively broken through the key resistance level of 151.00, providing technical support for further upward movement of the exchange rate.
However, the daily relative strength index (RSI) has shown a slightly overbought state, which has curbed the enthusiasm of bulls to open new positions.
Despite this, the overall technical pattern suggests that the path of least resistance for the exchange rate remains bullish.
On the downside, any technical pullback to around 152.60-152.55 could be seen as a buying opportunity. This would help build downside support around the 152.00 round number.
On the upside, further gains could see resistance near the 153.70-153.75 area, followed by a move above the psychologically important 154.00 level. A break above this level could accelerate USD/JPY's upward trajectory, pushing it towards the 154.70-154.80 area (corresponding to the swing high on February 11th), and potentially reclaiming the crucial 155.00 level.
(USD/JPY daily chart, source: Yihuitong)
At 11:28 Beijing time, the US dollar was trading at 152.82/83 against the Japanese yen.
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