The Japanese yen rose in the Asian market on Friday against a basket of major and minor currencies, as part of a recovery from five-week lows against the US dollar, supported by bargain buying from lower levels and positive economic data showing a strong jump in Japanese wages.
Despite this rise, the Japanese currency is on the verge of incurring a second consecutive weekly loss, due to growing concerns this week over the political situation in Japan, the world’s fourth-largest economy.
Global financial markets later today await the release of the US monthly jobs report, which will provide decisive pricing for the probabilities of the Federal Reserve cutting interest rates in September and October.
Price Outlook
• Yen exchange rate today: The dollar fell against the yen by about 0.3% to (148.08¥), from the opening price of (148.49¥), recording the highest level at (148.52¥).
• The yen ended Thursday’s session down by 0.3% against the dollar, nearing the lowest level in five weeks at 149.14 yen, pressured by political conditions in Japan.
Japanese Wages
Japan’s Ministry of Labor said Friday that total monthly cash earnings and a separate measure of full-time wages rose by 4.1% year-on-year in July, the fastest pace since December 2024, better than expectations of a 3.0% rise. Wages had increased by 3.1% in June.
Rising wages in Japan could pave the way for further price increases and faster inflation in the coming period. Undoubtedly, intensifying inflationary pressures on policymakers at the Bank of Japan increase the chances of additional interest rate hikes before the end of this year.
Japanese Interest Rates
• Following the above data, pricing of the probability of the Bank of Japan raising interest rates by a quarter point at the September meeting rose from 25% to 35%.
• To re-price those probabilities, investors await more data on inflation, unemployment, and wages in Japan, in addition to monitoring comments from some Bank of Japan members.
Weekly Performance
Over the course of this week, which officially ends with today’s settlement, the yen is down about 0.75% against the US dollar, on the verge of incurring a second consecutive weekly loss.
Political Situation in Japan
The secretary-general of Japan’s ruling party, Hiroshi Moriyama, one of Prime Minister Shigeru Ishiba’s closest allies, announced his intention to resign from his post, in a move that could deepen the party’s crisis and cast a shadow over Ishiba’s political future.
This development comes after growing pressure on the prime minister following the recent electoral defeat, with mounting calls for him to step down, though he has so far held firm and refused to resign.
Observers believe that Moriyama’s departure could weaken Ishiba’s internal standing and increase the likelihood of him coming under more political pressure in the period ahead.
These developments open the door for Sanae Takaichi as one of the leading candidates to succeed Ishiba. She is known for her economic stance favoring the maintenance of low domestic interest rates, which reinforces expectations of a more accommodative monetary policy in Japan should she assume the premiership.
US Jobs
Later today, the August US jobs report will be released, including new nonfarm payrolls, the unemployment rate, and average hourly earnings.
This data will provide decisive pricing for the probabilities of the Federal Reserve cutting interest rates by 25 basis points at the September meeting and another 25 basis points at the October meeting.
Expectations for Yen Performance
We at Economies.com expect the Japanese yen to continue trading in positive territory against the US dollar, especially if US jobs data comes in cooler than market expectations.
