Yen under Pressure: Bank of Japan and Political Uncertainties Weigh on Currency

The Japanese yen is currently under pressure from many sides, as the Bank of Japan (BOJ) is expected to maintain the extremely low interest rates. At the same time, the US dollar is holding steady in anticipation of new labor market data and the upcoming US presidential election. The yen's exchange rate has significantly dropped this month, linked to the highest US Treasury yields since July and the stable US dollar. With a decline of almost 6.3%, the yen is on track for its largest monthly loss against the dollar since November 2016. Japan's political upheaval is increasing discomfort and fueling uncertainty about the country's future fiscal and monetary policy direction. The BOJ is likely to adopt a cautious stance on Thursday, as political uncertainties and nervous markets cloud the outlook. Analysts are divided on whether there will be further interest rate hikes this year. BOJ Governor Kazuo Ueda's briefing after the meeting is expected to provide clues about the pace and timing of further rate adjustments. The yen stands at 153.24 against the dollar, just shy of a three-month low of 153.885 reached on Monday. According to Sean Teo, a sales trader at Saxo, a strengthening of the yen may currently occur mainly through a general weakening of the US dollar if interest rates were to align. However, cautious traders are alarmed, as a strong depreciation could attract the attention of Japanese authorities, Teo noted. Before the BOJ decision is made, new economic data from China is expected. The Chinese manufacturing Purchasing Managers' Index (PMI) will be released, with economists forecasting a further contraction in factory activity in October. In the US, labor market data will conclude the week on Friday, just before the presidential elections on Tuesday. Some investors are betting on a victory for Republican candidate Donald Trump, who is running neck and neck with Vice President Kamala Harris in the polls. Growth in US private payrolls rose sharply in October, despite concerns about temporary disruptions from hurricanes and strikes. Regardless, another data sheet showed that the US economy grew at an annualized rate of 2.8% in the third quarter, slightly below the 3% expected by economists. According to a statement from Westpac, the latest data confirm the underlying strength of the US economy and support what is already priced in, rather than providing fresh impetus for renewed growth.