Yen Gets Crushed as Markets Wait on US Inflation Numbers
Yen's getting destroyed. USD/JPY pushed above 158 Monday, hitting the weakest level since January 2025.
Quick overview
- The yen is weakening significantly, with USD/JPY surpassing 158, the lowest level since January 2025, due to political instability in Japan and uncertainty surrounding the Bank of Japan's policies.
- US CPI data is anticipated today, with expectations of core inflation rising, which could influence the Federal Reserve's rate cut decisions for Q1.
- Japan's political turmoil, including potential snap elections, is exacerbating the yen's decline as markets react negatively to the uncertainty.
- The Bank of Japan faces pressure to raise rates amid persistent inflation, but skepticism remains about their timing and effectiveness, contributing to the yen's struggles.
Yen’s getting destroyed. USD/JPY pushed above 158 Monday, hitting the weakest level since January 2025. Political mess in Japan plus BOJ uncertainty equals currency pain.
US CPI drops later today. Everyone’s watching to see if the Fed cuts rates in Q1. Odds have been falling lately but today’s number could change everything. Expectations: core CPI up 2.7% year-over-year, monthly core rising 0.3% after November’s 0.2%. Headline inflation expected to hold at 2.7%.
Meanwhile Trump’s DOJ is investigating Jerome Powell over comments about Fed headquarters renovations. Powell fired back. The whole thing’s deepening concerns about Fed independence right when markets need clarity on rate policy.
Japan’s political situation isn’t helping the yen. Coalition partner’s suggesting snap elections could happen February 8 or 15. Prime Minister Takaichi’s barely got her footing and they’re already talking new elections. Markets hate that kind of uncertainty.
BOJ Governor Ueda keeps saying they’ll raise rates if the economy cooperates. Problem is nobody believes the timing. Core inflation’s stuck at 3%, way above their 2% target, yet the policy rate’s still deeply negative in real terms. Takaichi’s pushing fiscal expansion, yields are jumping, yen’s tanking. Traders think BOJ’s behind the curve and getting influenced politically to go slow on hikes.
USD/JPY climbing past 157-160 zone raises intervention risk. Japanese officials always start making noise about “excessive volatility” around these levels. Finance Minister Katayama already said they’re monitoring moves closely. That’s the standard warning before they potentially step in.
Yen carry trades are back in full force. Weak yen makes it cheap to borrow in yen and buy US assets. That flow’s cushioning US stock futures even though they dipped Tuesday morning ahead of CPI. Nasdaq dropped 81 points, S&P down 10, Dow off 22 in Asian trading. Not a disaster but people are nervous.
Iranian situation’s adding geopolitical noise. Civil unrest there, Greenland tension with Trump, China-Japan political spat. None of it’s helping risk sentiment but the dollar’s catching safe-haven bids anyway.
If today’s CPI comes in soft, Fed rate cut odds for March jump. Currently sitting around 45% for an 18-March cut. Hot number pushes that back to April or later. Either way, the yen’s problem isn’t really about US rates. It’s about Japan’s credibility gap. BOJ needs to hike sooner than July (when markets currently expect the next move) or this slide continues.
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