USD/JPY keeps wavering between 157.00 and 158.00, lacking a clear bias.
Finance Minister Katayama reiterated Tokyo's commitment to support the Yen on Monday.
The US Dollar remains on its back foot, with investors awaiting Tuesday's US midterm elections.
The Japanese Yen (JPY) keeps looking for direction, unable to take advantage of a moderate US Dollar (USD) weakness on Monday, as markets brace for the US midterm elections. The USD/JPY keeps hesitating within previous ranges around 157.00 as the Bank of Japan (BoJ) cast doubt on the timing of the next interest rate hike after keeping monetary policy unchanged on Friday.
Earlier on Monday, the Japanese Finance Minister, Satsuki Katayama, reiterated that Tokyo is ready to respond if currency market movements become disorderly, and reminded of the agreement with the US to stem excessive JPY weakness. The impact of these comments on the Yen, however, has been minimal.
On Friday, the JPY reacted with moderate declines to the Bank of Japan’s monetary policy decision and Governor Ueda's press release on Friday. The BoJ left its benchmark interest rates unchanged at 1.25% as widely expected, but Ueda conditioned next interest rate hikes on developments in FX, IA, and the Middle East conflict, casting doubt on a December rate hike, and weighing on speculative support for the JPY.
Dollar momentum fades as Fed tone softens and US political risks loom
Regarding the USD, Analysts at MUFG observe that the US Dollar’s recent loss of momentum is being driven by a combination of softer policy signals from the Fed and rising political uncertainty. “A damaging defeat for the Republicans could put a dampener on US dollar strength, but we don’t expect it to be a game changer on its own,” says MUFG in a note, also warning that it “would limit room for further fiscal stimulus and could increase market attention on the potential for less market-friendly policies beyond the current Presidency.”
On the market side, MUFG points out that “the Fed’s policy update was less hawkish than expected, and AI-related US equities came under renewed selling pressure,” which has brushed off some of the US Dollar's shine. They highlight that “the 2-year US Treasury yield has fallen by almost 40bps from the high at the end of September,” and state that “market participants will be watching closely this week’s Quarterly Refunding Announcement from the US Treasury,” which could further influence Dollar dynamics and broader rate expectations.
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