Japanese Yen Underperforms G10 Ahead of Japan’s Weekend Elections

Japanese Yen Underperforms G10 Ahead of Japan’s Weekend Elections

The Japanese Yen (JPY) is holding steady against the US Dollar (USD) but has weakened against all other G10 currencies as Friday’s North American session unfolds. Despite broad-based USD softness, JPY continues to lag, reflecting investor caution ahead of Japan's upper house elections scheduled for this weekend.

Domestic Political Risk Weighs on Yen

Market participants remain wary of election-related fiscal implications, with concerns that any policy missteps could trigger a sovereign credit downgrade. This uncertainty is prompting traders to remain defensive with JPY exposure.

“Domestic risk is elevated into the weekend’s upper house elections,” analysts note. “There’s speculation around fiscal slippage and its impact on sovereign ratings.”

BoJ Policy Outlook: Less Downbeat, Still Cautious

Adding to the mix, recent reports suggest the Bank of Japan (BoJ) will issue a more optimistic quarterly outlook, showing improvements in trade, growth, and inflation. However, persistent bond market volatility and ongoing trade policy uncertainty have forced the BoJ to delay any potential interest rate hikes.

“The BoJ’s hands are tied,” say strategists. “They can’t proceed confidently with tightening while global and domestic risks remain fluid.”

Outlook: JPY Faces Crosscurrents

With the BoJ hesitant to act and political risks clouding the near-term view, the JPY may continue to underperform unless clarity emerges post-election. Traders should keep an eye on policy language in the BoJ’s quarterly report and potential changes in Japan’s fiscal outlook as market drivers next week.