Due to investors' expectations that the Federal Reserve will not rush to cut interest rates and the increasing possibility of Trump's re-election, the USD/JPY exchange rate rose to 152.65 yen on Wednesday, the highest level since the end of July. The EUR/JPY and GBP/JPY also rose by 0.8% and 0.9% respectively. Analysts pointed out that the yen is sensitive to US bond yields, and the political situation in Japan may affect the central bank's policy. The market believes there is a 91% chance that the Federal Reserve will cut interest rates by 25 basis points in November
According to the Zhitong Finance and Economics APP, due to investors' expectations that the Federal Reserve will not rush to cut interest rates and the increasing possibility of Trump's reelection, the USD/JPY exchange rate rose above 152 on Wednesday. As of the time of writing, the USD/JPY exchange rate was 1 USD to 152.65 JPY, the highest level since the end of July.
In recent weeks, the trend of the USD/JPY exchange rate has been mainly driven by the US dollar. However, on Wednesday, the movement of this currency pair also affected other currency pairs. Data shows that the EUR/JPY rose by 0.8% to 1 EUR to 164.49 JPY, and the GBP/JPY exchange rate rose by 0.9% to 1 GBP to 152.45 JPY, both reaching their highest levels since the end of July.
Roberto Cobo, the head of G10 foreign exchange strategy at BBVA, said, "The yen has been the most sensitive currency to the trend of US bond yields so far this year, which is the main driving force behind the rise in the USD/JPY exchange rate. In addition, as Japan approaches a change in government, the market expects the Bank of Japan to remain cautious and may not raise interest rates in December."
It is reported that Japan will hold a general election on October 27. Recent polls suggest that the ruling coalition of the Liberal Democratic Party and Komeito may not secure a majority in the election, which could lead to Prime Minister Yoshihide Suga stepping down or his party seeking another coalition partner to continue in power. Some analysts believe that such a scenario could undermine the political stability needed for the Bank of Japan to smoothly implement rate hikes, complicating the central bank's efforts to reduce reliance on monetary stimulus policies.
However, Roberto Cobo pointed out that the main driver of the yen remains US bond yields. He stated that as the market reduces expectations for a significant rate cut by the Federal Reserve this year, longer-term US bond yields have recently risen. The benchmark 10-year US Treasury yield touched 4.22% on Tuesday, the highest level since July 26.
Due to better-than-expected economic data, the market currently sees a 91% probability of the Fed cutting rates by 25 basis points in November. A month ago, the market believed there was a 100% chance of a 25 basis point rate cut in November, and even the possibility of another 50 basis point cut. Furthermore, the prospect of Republican presidential candidate Trump winning the US election next month has further boosted the rise of the US dollar and subsequently the USD/JPY exchange rate