Japanese Yen Weakens as Traders Eye US Inflation and Japan’s Fiscal Moves

The Japanese yen has come under pressure against the U.S. dollar, extending its slide to reach levels not seen in over a week. Investors are closely watching Japan’s economic policy under the new administration, alongside upcoming U.S. inflation data, as both factors weigh heavily on currency markets.

Recent data from Japan showed a slight increase in the national Consumer Price Index (CPI), signaling moderate inflationary pressures. While headline figures climbed to 2.9% year-on-year in September, core inflation also rose in line with expectations. Despite this, the yen has struggled to regain strength, reflecting broader market concerns over Japan’s economic outlook.

The newly appointed administration in Japan is expected to introduce expansive fiscal measures to support households amid rising living costs. A proposed $90 billion stimulus package could delay planned monetary tightening by the Bank of Japan, fueling expectations of a prolonged period of low interest rates. Such measures, while aimed at cushioning households, have intensified downward pressure on the yen.

At the same time, the widening interest rate gap between Japan and the United States is influencing investor sentiment. As U.S. Treasury yields rise, U.S. assets become more attractive, prompting capital flows away from the yen and reinforcing its weakness. This dynamic is particularly evident as markets anticipate the release of U.S. Consumer Price Index (CPI) data for September, which could provide further guidance on the Federal Reserve’s monetary policy path.

The yen’s depreciation also reflects broader market dynamics, including the impact of rising oil prices and global trade tensions. As Japan imports a significant portion of its energy needs, higher oil prices can exacerbate the currency’s weakness, particularly against the U.S. dollar.

Traders are now awaiting the U.S. CPI report, which is expected to influence short-term currency movements. A lower-than-expected inflation reading could provide temporary relief for the yen, while a higher reading may push the dollar higher, intensifying the pressure on Japan’s currency.

Overall, the combination of domestic fiscal stimulus, cautious monetary policy, and international market pressures continues to shape the yen’s trajectory. Analysts caution that prolonged yen weakness could have broader implications for Japan’s trade balance, import costs, and overall economic stability, making the coming weeks crucial for currency watchers and policymakers alike.