An end to the government shutdown was good news for people trading US-based markets. Stocks and indices shot up, and the US dollar got a small boost as traders reacted well to optimistic news.
However, news from the US, a global superpower, has much more than just a domestic effect. It ripples across the entire world, and currently, that ripple effect is strongly felt in Asia.
As traders become more prepared to take on risk, safe-haven currencies tend to suffer. This has caused issues for the Japanese yen, a currency already having significant struggles.
The Struggling Yen
The yen’s issues don’t solely come from optimism in US markets. The currency has been struggling against others as well, with it weakening 9.5% against the euro and roughly 10% against the GBP.
Recent economic releases have stoked fears surrounding the yen. The CPI rose 2.8% year-on-year in October, far exceeding the Bank of Japan’s 2% goal. And although wages grew, they struggled to outperform this inflation number, resulting in a decrease when it comes to real wage calculations.
The BoJ’s inflation policy was also a disappointment to traders. Many expected rate hikes as a means of reining in inflation, but the bank opted to hold rates at 0.5%. This complacency has caused confusion in the markets, as traders become more aware of the yen’s current state. The Bank of America has cited Japan’s monetary policy as the likely primary reason for the yen’s difficulties.
In October, the US dollar had a 4% rally against the yen, leading to the latter’s worst performance in 9 months. Currently, USD/JPY is testing the 155 mark, but experts believe that it may rise up to challenge 158 before a major economic release in Japan.
A Rising Sense of Urgency
It seems that some of the critiques pointed at the Bank of Japan’s policy have gotten through. While
Japan Finance Minister Satsuki Katayama has shown that the central bank has kept a close eye on the rapidly deteriorating situation of the yen. According to her statements, some action can be expected fairly soon. The focus seems to be excessive and rapid fluctuations such as the ones against the USD, primarily driven by irregularities in the forex market and speculation.
Katayama stated, “My stance remains completely unchanged at this point. Since we are seeing one-sided and rapid movements, just as I said at that time, we continue to monitor the situation with a high level of urgency.”
This was an echo of a previous sentiment, more directly stating that the government has been vigilant in overseeing the forex market’s movement. This is quite a strong sentiment from the Finance Minister, who has only stepped into her position last month. Before this, Katayama had only commented on general principles, emphasising the importance of tame and stable exchange rate movements that reflect the underlying fundamentals.
Taking this into account, some action seems unavoidable. Experts are predicting rate hikes, although the possibility of the US and Japan converging in economic policy remains a notable risk.
USD Outlook
While the USD has strengthened slightly on a wave of optimism, it isn’t necessarily in a brilliant state. Unpredictable decision-making and various political events have significantly harmed the currency. Even with the October rally against the Japanese yen (JPY), where the greenback briefly outperformed the yen, the USD is only up about 2% year-to-date.
Consumer sentiment is showing that spenders aren’t feeling confident. The University of Michigan posted a survey that shows that consumer sentiment levels are alarming, reaching the lowest level in three years and nearing an all-time low.
The Index of Consumer Sentiment, released monthly by the university, shows a result of 50.3 for November. This is a decline of 6.2% compared to the previous month (53.6) and a year-on-year decrease of roughly 30%.
Dow Jones surveyed economists, who were hoping for a result of 53.0. This indicates that the government shutdown was a hard hit for an already struggling dollar.
The current sentiment results are near June 2022’s results, which were fueled by the worst inflation in 40 years. This month’s reading is the second lowest ever, only beaten out by results in 1978.
Shutdown Ends, But Mood Sours: Dollar, Yen and U.S. Outlook Under Pressure
Joanne Hsu, survey director, noted that the end of the shutdown, although it was able to cause a stock rally, hasn’t made much of an impact on consumer sentiment.
“With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” Hsu noted. “This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.” She added.
This pessimism doesn’t only extend to general economic outlooks. The USD, in particular, has lost trust among traders. Bank of America’s monthly global fund manager survey shows that investors are broadly mistrusting the greenback.
June 2025’s results show that global fund managers are the most underweight on the dollar in at least 20 years. August’s report affirmed that, showing that nearly 23% of respondents intend to short the currency. This shows a strong tilt against the USD, with recent government issues worsening the issue further.
This bearish position aligns with a more negative stance on other segments of the US market, such as shares, and a correction towards other regions.
Notably, however, this only reflects sentiment, not the market action. As such, it may not be apparent in the short term as far as prices go.
Conclusion
While the Japanese market has obviously weakened, strong government action may be able to correct this. However, the USD’s transient gains may be a good opportunity for traders aiming for the short term. Japan’s next economic cycle is bound to be a vital one for the USD/JPY pair, so traders interested in these two safe havens should keep their eyes peeled. Additionally, this shouldn’t be interpreted as an across-the-board win for the greenback. Even the wave of optimism that has managed to shake up its relationship with the yen hasn’t managed to cause much of a stir in other key pairs. It has weakened against the euro and remained flat against the GBP.
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