We see USD/JPY returning below 150 for the rest of the year. The Finance Ministry consistently jawboned the JPY’s weakness around the 154 level against the USD. Vice Finance Minister Atsushi Mimura noted that USD/JPY did not reflect the fundamentals indicated by interest rate differentials. And markets are renewing bets for a Fed cut and a Bank of Japan hike in December again. Japan’s largest labour union, Rengo, plans to increase overall wage growth by at least 5% in next year’s wage negotiations. Another large union, UA Zensen, intends to seek a higher increase of 6% in 2026 vs. the 4.75% achieved this year. The next BOJ meeting is scheduled on December 19, after the extraordinary Diet session. running through to mid-December, decides on the supplementary budget.
Following her early success in foreign affairs and diplomacy, Prime Minister Sanae Takaichi is facing her first test in governing in the current Diet session. The new Liberal Democratic Party (LDP)-Inshin coalition is untested and may prove less stable and predictable than the longstanding LDP-Komeito coalition (2012-2025) it replaced. The initial popular support Takaichi and her minority government enjoyed hinges on her ability to navigate the complex and competitive legislative environment to deliver her Abenomics-style policies. Inshin is not formally integrated into the LDP government and can vote as it wants on legislation. Hence, Inshin will likely test the LDP’s commitment to the partnership by holding it accountable to the three non-negotiable policy demands – the second capital initiative, lowering social insurance fees, and reducing the number of Diet members by 10%. Even if Inshin is cooperative, Takaichi’s coalition must convince at least two Lower House lawmakers and five Upper House lawmakers to pass the FY 2025 supplementary budget by mid-December.
The DXY Index may extend its retreat below 100 today. The market is brushing aside the Fed’s caution that a December rate cut is not a done deal. The US Supreme Court’s scepticism about the legality of US President Donald Trump’s tariffs under the International Emergency Economic Powers Act (IEEPA) has reduced the case for tariff-driven inflation. Instead, focus has returned to labour market fragility after Challenger reported the largest number of job cuts for any October in 20 years.
If today’s University of Michigan Survey of Consumers affirms that medium-term inflation expectations remain anchored amid rising job insecurity, the futures markets are likely to increase the probability of a December cut. Unlike the last survey, consumers may start linking the US government shutdown to the broader US economy. The Democrats’ victories in the Virginia, New Jersey, and New York elections indicated the voters’ willingness to punish the party in power for the fiscal dysfunction and shutdown adding to economic anxiety.
GBP/USD can extend its recovery to 1.33 if it closes above 1.3140. GBP/USD is underpinned by a weaker DXY, as it has been for most of this year. However, GBP may feel some drag from three areas – the GBP/JPY breaking below 200, ongoing anxiety over the November 26 Autumn Budget, and a possible rate cut by the Bank of England on December 18. Although the BOE left the bank rate unchanged at 4% for a second meeting, BOE Governor Andrew Bailey indicated that CPI inflation may have peaked at 3.8% YoY in September. Chancellor Rachel Reeves also needs to demonstrate a responsible approach to public finances in the Autumn Budget scheduled on November 26.
Quote of the Day
“Don't watch the clock; do what it does. Keep going.”
Sam Levenson
November 7 in history
Mary Robinson was elected the first female president of Ireland in 1990.
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