The Japanese yen continued to weaken against the U.S. dollar, recording its fourth consecutive session of losses, as pressures mounted ahead of Japan’s elections, which are expected to lead to increased fiscal and defense spending if Prime Minister Sanae Takaichi wins, fueling market concerns over the continued weakness of the currency.
Selling pressure on the yen intensified after the dollar strengthened against most major currencies, supported by data showing stability in the U.S. services sector, alongside signs of rising input costs. This rekindled fears of a return of inflationary pressures and left expectations regarding U.S. monetary policy unclear amid the delay in the release of key employment data.
The yen recorded a notable decline, nearing 157 per dollar after touching its weakest level since late January, extending losses of more than 2% since the end of last month. This drop occurred despite U.S. authorities denying any intervention to support the Japanese currency, while markets continue to watch closely for any official moves aimed at curbing yen volatility.
Pressure on the Japanese currency increased following election related remarks by the prime minister suggesting benefits from a weaker yen, which she later walked back. However, uncertainty remains regarding the direction of economic policy, with concerns that mixed signals could undermine efforts to support the currency.
Analysts believe the yen has become the weakest performing major currency, as multiple factors converge, including political risks tied to the election, a widening yield gap between Japan and the United States, and renewed focus on the strength of the U.S. economy compared to sluggish momentum in other economies. In this context, yen movements remain highly sensitive to any economic data or political signals that could influence global interest rate expectations.
While the dollar continues to trade within its recent range, ongoing pressure on the yen reflects investor concerns that expansionary fiscal policies could prolong the currency’s weakness, potentially posing additional challenges to efforts aimed at stabilizing Japanese markets in the coming period.
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