The Japanese yen saw a notable rebound following verbal interventions by Japanese and American officials, alongside a joint announcement to bolster security cooperation between Tokyo and Washington.
The yen rose by 0.7% against the U.S. dollar, marking its first gain after seven consecutive days of losses, having recently approached its weakest level since February.
The currency remains the worst performer among G10 currencies in October, with a decline of nearly 3% against the dollar.
This recovery comes after remarks by Minoru Kiyouchi, Japan’s Minister for Economic Strategy, who emphasized that Japanese authorities are closely monitoring the impact of the yen’s depreciation on the domestic economy.
Meanwhile, U.S. President Donald Trump and Japanese Prime Minister Sanae Takaichi pledged to deepen defense cooperation and increase military spending, signaling a strategic shift in bilateral relations.
U.S. Treasury Secretary Scott Besant, accompanying Trump on his trip to Japan, also issued warnings regarding currency volatility, stressing the importance of sound monetary policy in mitigating excessive exchange rate fluctuations.
In a statement following his meeting with Japanese Finance Minister Satsuki Katayama, it was noted that current conditions may necessitate a reassessment of the Bank of Japan’s monetary stance.
Commenting on the matter, Derek Halpenny, Head of Global Markets Research at MUFG Bank, said:
“The U.S. Treasury statement clearly suggests that the Bank of Japan’s current monetary stance is no longer justified.
At these USD/JPY levels, we expect the pressure to sell the yen to ease significantly.”
While the Bank of Japan is not expected to alter interest rates in its upcoming meeting this week, pressure is mounting to begin tightening, given the rise in inflation and the continued weakness of the yen.
On the U.S. side, markets are closely watching the Federal Reserve’s policy meeting on Wednesday, with strong expectations of a 25-basis-point rate cut.
Concerns over the strength of the U.S. labor market deepened this week after Amazon announced plans to cut approximately 14,000 jobs as part of a major restructuring effort.
The Bloomberg Dollar Spot Index fell by 0.1%, reflecting cautious sentiment in the market ahead of upcoming U.S. economic data releases, which have been delayed due to the ongoing government shutdown.
Commenting on the yen’s performance, Chris Turner, Head of FX Strategy at ING Bank in London, noted:
“The yen is benefiting from some mild verbal intervention by Japanese authorities.
In a market deprived of U.S. data due to the government shutdown, headlines such as Amazon’s job cuts may carry outsized influence.”
