Yen Weakens Again—Is Japan Entering a Fiscal "Danger Zone"?
The Japanese yen (JPY) weakened in the Asian session on Wednesday. Markets are concerned about Japan's worsening fiscal situation after Prime Minister Sanae Takaichi unveiled a large spending plan and aggressive tax cuts. The situation is further heightened by political uncertainty ahead of the February 8th snap elections. With market risk appetite positive, the yen, traditionally a safe-haven asset, has been abandoned, dropping from its nearly three-month high against the US dollar.
Meanwhile, the hawkish minutes of the Bank of Japan's (BoJ) December meeting did little to support the yen. The minutes showed that members agreed that interest rates should continue to rise gradually. This stance contrasts with market expectations that the US Federal Reserve (The Fed) could still cut interest rates at least two more times. In theory, this difference in policy direction could support the yen, especially given concerns about intervention if the movement becomes too aggressive.
However, for now, pressure on the yen remains. However, the recent weakening of the US dollar has the potential to restrain the USD/JPY from going too far. This means that the USD/JPY movement could remain "contained" due to two forces pushing against each other: the yen is under pressure from Japan's fiscal-political issues, but the dollar is also not particularly strong due to the bearish sentiment towards the USD. (az)
Source: Newsmaker.id
