Japanese Yen Nears 3-Month Low vs USD Ahead of Japan's Upper House Election

Japanese Yen Nears 3-Month Low vs USD Ahead of Japan's Upper House Election

The Japanese Yen (JPY) continues to trade under pressure on Friday, weakening for the second consecutive session against the US Dollar (USD). The USD/JPY pair remains close to its lowest level in over three months, driven by dovish expectations surrounding the Bank of Japan (BoJ) and broader risk sentiment.

BoJ Rate Hike Expectations Diminish

Markets increasingly believe the BoJ will hold off on interest rate hikes in 2025 amid concerns over the fragile state of Japan’s economy and the inflationary impact of US-imposed tariffs. The National Consumer Price Index (CPI) report released today failed to shift sentiment, offering no new reason to support the JPY.

The Japanese Yen is also facing reduced safe-haven demand, as geopolitical tensions ease and risk appetite returns to markets. This shift has allowed the USD/JPY pair to maintain upward momentum, supported further by sustained US economic strength.

Traders Eye Japan's Upper House Election

Despite the weakness, market participants remain cautious ahead of Sunday's upper house election in Japan, avoiding heavy bets against the JPY in the near term. The election outcome could have implications for fiscal and monetary policy, making it a potential volatility event for the Yen.

US Dollar Holds Strong Despite Dovish Fed Comments

Meanwhile, the US Dollar remains buoyed by speculation that the Federal Reserve will delay interest rate cuts, even after dovish remarks from Fed Governor Christopher Waller. Waller acknowledged the need for cuts but emphasized timing and economic risk assessment. This has allowed the USD/JPY pair to mark a second consecutive weekly gain.