The Japanese yen has experienced a significant decline, dropping nearly 6.3% this month and approaching its largest monthly loss against the dollar since November 2016. Political instability in Japan complicates fiscal and monetary policy outlooks, with the Bank of Japan expected to maintain a cautious stance. Meanwhile, U.S. employment data shows resilience, as the dollar remains strong, impacting currency markets ahead of upcoming economic reports from China and the U.S. presidential election.
This month has seen the Japanese yen struggle significantly, while the US dollar and Treasury yields remain at their highest since July.
Currently, the yen has depreciated by approximately 6.3% this month, positioning it for its largest monthly decline against the dollar since November 2016.
Political instability in Japan has further exacerbated the yen’s decline, fostering uncertainty regarding the future of the nation’s financial and monetary policies.
As the Bank of Japan’s upcoming meeting approaches, analysts anticipate a conservative approach from the central bank, given the prevailing political instability and market jitters.
However, there is a split among experts regarding the likelihood of additional rate hikes by the year’s end, with attention focused on BOJ Governor Kazuo Ueda’s comments following the meeting for insights on future rate adjustments.
As it stands, the yen was down 0.11%, trading at 153.24 against the dollar, hovering near a recent low of 153.885 reached on Monday.
Sean Teo, a trader at Saxo, noted, “Any recovery in the yen would likely depend on a generalized weakening of the US dollar if interest rates begin to align.”
Nonetheless, the recent drop in the yen has made many traders wary, as excessive depreciation could prompt intervention from Japanese authorities.
In the lead-up to the BOJ’s decision, attention will also be on forthcoming economic data from China, with the manufacturing PMI set to be released in the Asian session.
Economists surveyed by Reuters predict that the National Bureau of Statistics’ manufacturing PMI will stand at 49.9, indicating a contraction in factory activity for the sixth consecutive month in October.
The offshore yuan was last observed trading at 7.1269.
EMPLOYMENT REPORT, PRESIDENTIAL ELECTIONS LOOMING
The week wraps up with the release of US non-farm employment data on Friday, just days before the Tuesday presidential election.
Some investors have begun positioning themselves for a potential win by Republican candidate Donald Trump, though recent polls indicate a tight race with Vice President Kamala Harris.
In October, growth in U.S. private employment picked up pace, despite concerns over temporary interruptions from hurricanes and strikes.
Additionally, it was reported that the U.S. economy expanded at an annualized rate of 2.8% in the third quarter, slightly under the 3% that had been anticipated by economists.
According to analysts at Westpac, “The overnight data confirmed the underlying strength of the US economy, reinforcing existing market prices without providing a fresh impetus for further upward movement.”
The dollar index, which gauges the currency’s performance against six other major currencies, remained stable at 104.09 after experiencing a slight dip the previous day. It had peaked at 104.63 on Tuesday, its highest point since July 30.
The euro traded steadily at $1.0859. Recent regional inflation figures and Eurozone GDP data exceeded expectations on Wednesday, prompting traders to lower their predictions regarding a potential interest rate cut by the European Central Bank in December.
In the UK, the pound was noted at $1.2957, showing a minimal decline of 0.03% for the day.
Meanwhile, the Australian dollar reached $0.65726 before the release of September retail sales figures in Asia during the morning.
The New Zealand dollar experienced a slight drop, falling 0.02% to $0.5974.