The Japanese Yen (JPY) strengthened against the US Dollar (USD) on Wednesday, with USD/JPY extending its decline for a second consecutive session as the Greenback came under renewed pressure from escalating US-China trade tensions, growing expectations of further Federal Reserve (Fed) rate cuts, and ongoing fiscal paralysis in Washington. At the time of writing, the pair trades around 151.30, down nearly 0.35% on the day and retreating from last week’s eight-month high near 153.27.
Trade tensions weigh on market sentiment
Geopolitical concerns resurfaced this week after President Donald Trump announced plans to impose 100% tariffs on all Chinese imports starting November 1, in response to Beijing’s tighter export restrictions on rare-earth elements.
The move rattled markets, heightening fears of a renewed trade war between the world’s two largest economies. In the latest escalation, Trump accused China of deliberately cutting soybean purchases from US farmers and hinted that Washington could revoke certain trade arrangements, including those related to cooking oil and agricultural goods.
US fiscal gridlock adds to Dollar pressure
The protracted US government shutdown continues to erode investor confidence, now entering its third week without a resolution. The Senate is expected to vote again on Wednesday on a House-approved temporary spending bill aimed at reopening federal agencies, following another failed attempt on Tuesday night. Prolonged fiscal paralysis is adding to recessionary concerns, amplifying downward pressure on the USD.
Fed rate cut expectations intensify
Market participants remain convinced that the Fed will deliver additional policy easing before the end of the year. According to the CME FedWatch Tool, traders are pricing in a 97% probability of a 25-basis-point (bps) rate cut at the October 29–30 meeting and a 95% chance of another in December. The dovish outlook reflects expectations that the Fed will prioritize stabilizing the weakening labor market over inflation, which remains above the 2% target.
Japan’s political uncertainty limits Yen upside
While the Yen benefits from safe-haven inflows, its gains are somewhat tempered by domestic political uncertainty. The leadership vacuum in Tokyo persists after the collapse of the ruling coalition, leaving the Liberal Democratic Party’s (LDP) new leader, Sanae Takaichi, awaiting parliamentary endorsement to assume the role of Prime Minister. The LDP has proposed a parliamentary vote for October 21, though opposition parties have yet to agree, leaving Japan’s political outlook uncertain.
