Yen Approaches 40-Year Trough

The Japanese yen strengthened toward 157.5 per dollar on Wednesday, reversing a two-day decline as the US dollar came under significant pressure after early election polls suggested a possible Democratic takeover of both chambers of Congress. The prospect has heightened political uncertainty in the US, with a potential Democratic sweep raising concerns over stricter AI regulations and increased corporate oversight that could weigh on the country's economic growth outlook. The yen also gained support from safe-haven demand, alongside government bonds, as technology and artificial intelligence stocks faced renewed selling pressure. Meanwhile, investors are looking ahead to Japan’s wage data due later this week for further clues on the Bank of Japan’s monetary policy outlook. Last week, the BOJ kept its benchmark interest rate unchanged at 1.25% but indicated that underlying inflation had reached its 2% target, potentially paving the way for another rate hike as early as December.

The Japanese yen weakened toward 158 per dollar, struggling to gain traction despite renewed verbal warnings from Tokyo. On Monday, Finance Minister Satsuki Katayama reiterated that authorities are prepared to take action if currency movements become excessive or disorderly, while emphasizing continued coordination with the US on foreign exchange matters. Meanwhile, investors are awaiting Japan’s wage data due this week for further indications of the Bank of Japan’s monetary policy direction. Last week, the BOJ kept its benchmark interest rate unchanged at 1.25% but signaled that underlying inflation had finally reached its 2% target, potentially opening the door to a rate hike in December. Elsewhere, safe-haven demand for the yen weakened as the technology stock selloff, driven by growing concerns over artificial intelligence valuations, began to ease. However, disappointing corporate earnings continued to weigh on Japanese equities.

The Japanese yen strengthened toward 157 per dollar on Friday, extending gains for a third consecutive session after the Bank of Japan kept its policy rate at 1.25%, in line with market expectations. The central bank signaled that underlying inflation has finally reached its 2% target, potentially paving the way for a rate hike in December. The decision was reached by an 8-1 vote, with board member Hajime Taka dissenting in favor of raising rates to 1.5%, arguing that conditions have entered a new phase that warrants a faster move toward a neutral interest rate. Meanwhile, the yen received additional support from safe-haven demand as disappointing earnings from major technology companies revived concerns over AI-related investments and triggered another equity selloff. Furthermore, global asset managers have begun returning to Japan’s bond market as improving domestic demand and a more favorable monetary policy outlook increase the attractiveness of relatively higher yields.