Yen Pulls Back On Profit-Taking Ahead Of LDP Vote, Dollar Steadies

Yen is paring back after a week of strong gains, as profit-taking sets in and domestic risk appetite strengthens. Japanese equities rallied sharply, driven by Hitachi’s announcement of a partnership with OpenAI to build AI data centers globally, bolstering optimism in the local market and easing demand for safe-haven flows.

BoJ Governor Kazuo Ueda added to the softer tone, giving no indication in his latest remarks that a rate hike is imminent. Combined with a surprise rise in Japan’s unemployment rate, this has cooled speculation that the central bank could act as soon as October.

Attention is also turning to politics, with the LDP’s presidential election on Saturday set to determine the ruling party’s next leader. Shinjiro Koizumi and Sanae Takaichi are seen as the main contenders, though polling has painted a mixed picture of support between the two, highlighting the uncertainty surrounding the outcome.

Kyodo News reported Takaichi ahead with 34.4% support versus Koizumi’s 29.3%, while a Yomiuri Shimbun survey showed Koizumi in the lead at 40% compared to Takaichi’s 25%. With the race finely balanced, traders have opted to scale back positions, awaiting clarity before driving the Yen further.

In the US, Dollar is modestly firmer, particularly against the Loonie, as equity markets continue to perform strongly despite the ongoing government shutdown. All three major indices — the Dow, S&P 500, and Nasdaq — touched new intraday record highs, reflecting investor confidence that shutdowns cause only temporary drags on growth.

Even so, weekly performance still shows the Yen leading the pack, followed by Kiwi and Aussie. At the weaker end, Loonie, Dollar, and Swiss Franc are lagging, while Sterling and Euro sit mid-table.

In Asia, at the time of writing, Nikkei is up 1.72%. Hong Kong HSI is down -0.80%. China is still on holiday. Singapore Strait Times is up 0.27%. Japan 10-year JGB yield yield is up 0.001 at 1.667. Overnight, DOW rose 0.17%. S&P 500 rose 0.06%. NASDAQ rose 0.39%. 10-year yield fell -0.018 to 4.088.

BoJ’s Ueda reiterates further hikes if baseline holds, flags three uncertainties

BoJ Governor Kazuo Ueda said in a speech today that Japan’s real interest rates remain “significantly low,” and if the Bank’s baseline scenario holds, policy rates will continue to rise. He highlighted that rising labor shortages and firmer medium- to long-term inflation expectations should eventually push underlying CPI toward 2% in the second half of the Bank’s forecast horizon.

Ueda acknowledged, however, that uncertainties remain significant. Chief among them are US economic developments, tariff impact on Japan, and food price inflation.

He warned that tariffs could hurt US firms’ profits and in turn slow employment and income growth — risks that may already be showing in weaker US job data. If firms pass on costs instead, higher consumer prices could sap private demand.

At home, the Tankan survey suggested resilience in services, where the tariff impact is limited, but profit projections for export-heavy industries such as autos showed steep declines.

Food prices are another area of concern. While much of the recent rise has been driven by temporary factors, Ueda cautioned that wage and distribution cost pass-through is increasingly evident. That raises the possibility of more persistent inflation in food.

Japan unemployment rate rises to 2.6%, highest in over a year

Japan’s unemployment rate rose more than expected in August, climbing to 2.6% from 2.3% a month earlier. That marked the highest reading since July 2024 and exceeded expectations of 2.4%.

Number of unemployed increased by 150k to 1.79 million, a 13-month high, while employment fell by -210k to 68.10 million. The labor force edged down by -40k to 69.89 million, though the participation rate improved to 64.0% from 63.9%. Still, the data underscored growing strain in the labor market as job creation weakens and unemployment rises.

Complementary data from the labor ministry showed the job-to-applicant ratio slipping to 1.20 from 1.22, its lowest since January 2022. The decline points to waning demand for labor.

USD/JPY Daily Outlook

Daily Pivots: (S1) 146.73; (P) 147.13; (R1) 147.65; More…

Intraday bias in USD/JPY is turned neutral first with current recovery. For now, price actions from 150.90 are still seen as a corrective pattern. On the upside, above 148.12 minor resistance will bring stronger rally to 149.95 first. Firm break there should resume larger rally from 139.87 through 150.90. On the downside, though, below 146.58 will bring deeper fall to 145.47 support. Decisive break of 145.47 will indicate near term reversal, and bring deeper fall to 142.66 support next.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.