Yen Under Pressure Despite Some Supportive Indicators

The Japanese yen fell against the U.S. dollar on Monday, weighed down by the strength of the greenback. The USD/JPY pair rose about 0.3% after data showed the Japanese economy contracted in the third quarter at the fastest pace in a year and a half.

This downturn strengthens Prime Minister Sanae Takaichi’s case for a large stimulus package that could widen Japan’s budget deficit.

The yen did find some support from revised industrial production figures for September, which were adjusted upward to 2.6% month‑on‑month from the previously reported 2.2%.

Rising Japanese government bond yields also helped limit the currency’s decline, with the 10‑year JGB yield climbing to 1.737%, its highest level in 17 years.

Even so, the yen remains relatively weak. Last week it fell to a nine‑and‑a‑half‑month low against the dollar, pressured by political and fiscal uncertainty as well as the Bank of Japan’s delay in raising interest rates.

Concerns over Japan’s mounting debt have also grown after the government announced it would abandon its annual budget‑balancing target.

Economic data confirmed that Japan’s GDP shrank by 1.8% in the third quarter on an annualized quarterly basis—the sharpest decline in a year and a half, though better than forecasts of a 2.4% drop.

The GDP deflator rose 2.8% year‑on‑year, below expectations of 3.1%.

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