The Japenes Yen has been declining for the fourth day in a row and is still stuck close to its lows against the dollar. You’d think stronger household spending would help, but even a solid rebound in November didn’t turn things around. People in Japan are spending more, sure, but inflation keeps racing ahead of wage growth. That’s got investors worried that this burst of spending won’t last as we head into early 2026.
Uncertainty at the BoJ and Tensions With China Weigh on the Yen
The real drag on the Yen is all the uncertainty around what the Bank of Japan will do next. Governor Kazuo Ueda keeps saying rate hikes are possible if things go as planned, but traders aren’t buying it—they want to see actual steps, not just talk. Meanwhile, real wages have been falling for eleven straight months, which only makes things tougher for policymakers. And then there’s the friction with China. Restrictions on rare-earth exports to Japan are adding new headaches for supply chains, making investors even more nervous about holding onto the Yen.
Strong Dollar and Jobs Data Keep USD/JPY Elevated
On the flip side, the US Dollar isn’t backing down. It only hit a one-month high, and I think traders are waiting for the US jobs report. The risk landscape is stable, and it’s creating a large appetite for the Dollar, so USD/JPY has held off another 157.00 handle this week. Yet all the talk of Fed rate cuts later this year is in play, which could limit how far the dollar can fall. With little in the way of US jobs numbers to provide a clearer sense of direction for both equity markets and bond yields, expect Dollar strength and Yen weakness to prevail for now.
