Dollar holds gains vs yen with Japan fiscal policy, US data in focus

The US Dollar (USD) clung to gains against the yen after touching a fresh 9-1/2-month high on Tuesday and edged up versus the euro as investors worried about Japan’s fiscal stance and awaited U.S. data for signals on the Federal Reserve’s next move.

Data from the Cleveland Fed showed that 39,000 Americans were given advance notice of layoffs last month and a report from ADP Research showed that employers cut 2,500 jobs a week on average during the four weeks ending November 1.

This comes as investors remain concerned about a weakening U.S. economy, and the expectations for interest-rate cuts continuing to recede.

“It kind of jibes overall with the weakening jobs market” said John Velis, head of Americas macro strategy at BNY Markets. “I think the general tone is soft risk off in asset markets, bond yields lower on sort of negative outlook. Equities open lower, but the dollar is not really moving very much.”

The dollar index , a measure of the U.S. currency against major rivals, was last up 0.09% at 99.63, after snapping a four-day losing streak on Monday.

The yen was last at 155.42, slipping 0.1% against the buck. Earlier in the session it hit 155.445, its lowest level since February 4.

While Bank of Japan Governor Kazuo Ueda has signalled the chance of raising interest rates as soon as next month, Prime Minister Sanae Takaichi has voiced displeasure over the idea and urged the BoJ to cooperate with government efforts to reflate the economy.

Barclays advised staying long on the U.S. dollar against the yen, saying Takaichi’s Abenomics-style policies are likely to keep pressure on the Japanese currency.

It lifted its target to 158.8, arguing that additional fiscal spending will swell Japan’s debt and raise the premium investors demand to hold yen.

“Japan has added a tumultuous element because this new prime minister seems to be more aggressive and wants to do more spending,” said Juan Perez, director of trading, Monex USA. “So, that takes away a safe-haven in the world of finance, which is Japan. Now they are little bit more wild, they’re a little bit more volatile.”

INTERVENTION RISK

Analysts also flagged a growing risk of foreign-exchange intervention, which could slow the dollar’s climb, though they noted that recent verbal warnings from authorities do not point to imminent action.

Japanese Finance Minister Satsuki Katayama on Tuesday expressed concern over recent foreign exchange movements.

Japan must compile a stimulus of around 23 trillion yen, Goushi Kataoka, a private-sector member of a key government panel, told Reuters on Monday. That would far exceed the 17-trillion-yen package previously reported by the Nikkei newspaper, stoking fresh market anxiety over the supply of new government debt that bond markets would have to digest.

The yield curve for Japanese government bonds steepened further on concerns about the size of Takaichi’s stimulus package, with 20-year yields reaching a 26-year high.

Meanwhile, investors are looking towards the September jobs report expected on Thursday, for clues on possible Fed action.

“Whether there is partial release or a full release of anything in September, anything that gives us a window into which we can then use to do analysis is going to be taken as great news,” Perez said.

Fed Governor Christopher Waller continued to build the case for further rate cuts amid a broad policy dispute at the

U.S. central bank, while Fed Vice Chair Philip Jefferson said the U.S. central bank needs to “proceed slowly”.
Money markets are pricing in the chance of a 25-bp rate cut next month at around 50%, according to CME Group FedWatch tool, down from around 60% last week.

The euro was down 0.15% at $1.1575, while the safe-haven Swiss franc was last trading at 0.7991 against the dollar.
In cryptocurrencies, bitcoin gained 1.33% to $93,024.36 while ethereum rose 3.72% to $3,118.88.