Yen Hits Nine-Month Low as Traders Eye Possible Fed Rate Cuts; Dollar Weakens Amid Soft U.S. Jobs Data

Yen Hits Nine-Month Low as Traders Eye Possible Fed Rate Cuts; Dollar Weakens Amid Soft U.S. Jobs Data

The Japanese yen slipped to a nine-month low on Wednesday, sparking renewed concern among Tokyo officials as the government hinted at potential measures to stem further depreciation. Meanwhile, the U.S. dollar edged lower after private-sector jobs data indicated a cooling labor market, strengthening expectations of a Federal Reserve rate cut in December.

During the Asian session, the yen touched 154.79 per dollar, its weakest level since February, before recovering slightly following remarks from Finance Minister Satsuki Katayama. Katayama noted that the negative impacts of a weaker yen on Japan’s economy have become “more pronounced than its benefits.”

“Both the market and Katayama seem to be drawing a line around 155,” said Shoki Omori, chief desk strategist at Mizuho Securities. “I wouldn’t be surprised if the dollar/yen crosses 155, which could trigger stronger verbal intervention. However, the more frequently Katayama targets the market, the less reactive it becomes. The next step could be more comments or intervention from the vice minister.”

The yen has fallen nearly 0.8% so far this week, influenced by renewed risk appetite following expectations that the U.S. government shutdown will soon end and optimism over new Prime Minister Sanae Takaichi’s fiscal policies. Investors anticipate greater fiscal flexibility under her leadership.

Takaichi said Wednesday she was “confident” the Bank of Japan would maintain its monetary stance until inflation stabilizes at 2% through wage growth rather than higher import costs. Earlier this week, she also suggested setting a new multi-year fiscal target to allow more spending flexibility, a move that could weaken Japan’s fiscal consolidation goals.

The euro rose more than 0.3% to a record 179.14 yen, while sterling gained 0.26% to 203.11 yen.

Dollar Edges Lower on U.S. Labor Market Concerns

The broader dollar index inched up 0.1% to 99.54, partly supported by the weaker yen, after paring some of its previous session’s losses.

Payroll processor ADP reported that U.S. private employers cut more than 11,000 jobs in the week ending late October, signaling a gradual cooling in the labor market that the Fed is closely watching.

The report pushed the dollar lower as traders priced in higher odds of a December rate cut. Sterling last traded 0.08% lower at $1.3138, while the euro held steady at $1.1579.

“The alternative indicators suggest the labor market is softening,” said Sim Moh Siong, currency strategist at Bank of Singapore. “But whether we are seeing a deeper deterioration remains an open question. The official data expected next week, after the U.S. government reopens, should offer more clarity.”

Futures pricing indicates a 64% probability of a 25-basis-point Fed rate cut in December, though traders await confirmation from pending economic releases once the Republican-controlled House of Representatives votes on a funding agreement to reopen federal agencies.

“We believe the balance of risks in labor, inflation, and consumption supports a 25-basis-point rate cut next month,” said Brian Martin, head of G3 economics at ANZ.

Elsewhere, the Australian dollar rose 0.12% to $0.6536, while the New Zealand dollar was little changed at $0.5655. A senior official at the Reserve Bank of Australia said debate is growing over whether the current 3.6% cash rate is sufficiently restrictive to bring inflation under control — a key question for future policy direction.