The Japanese yen continued to struggle on Wednesday, slipping further as investors remained focused on the widening interest rate gap between Japan and other major economies. Despite expectations that the Bank of Japan (BOJ) will tighten monetary policy next week, the yen hovered near 156.82 per dollar after a sharp 0.6% decline the previous session, showing no clear catalyst for the move. The currency also stayed pinned near a record low against the euro, while the Australian dollar maintained its strong performance against the yen following Tuesday’s gains.
Analysts attribute the yen’s vulnerability to rising long-term U.S. yields and ongoing concerns about Japan’s fiscal outlook. Alex Hill of Electus Financial noted that market sentiment continues to pressure the yen and suggested further weakness may extend into the new year. He added that crosses such as kiwi/yen and Aussie/yen appear well positioned for additional upside. Although the BOJ is expected to raise interest rates, investors are watching closely for signals from Governor Kazuo Ueda regarding the bank’s future policy direction, particularly as Japan weighs new fiscal measures that complicate its already delicate economic landscape.
Broader currency markets traded cautiously ahead of the U.S. Federal Reserve’s policy announcement. A 25-basis-point rate cut is widely expected, keeping the dollar stable with the dollar index holding at 99.23. The euro traded near $1.1625, while sterling edged slightly higher to $1.3301. Market participants will be closely analyzing Fed Chair Jerome Powell’s comments and the updated dot plot, which may offer clues about rate cut expectations for 2026.
In the commodity-linked currencies, the Australian dollar traded at $0.6643 after nearing a three-month high on hawkish remarks from the Reserve Bank of Australia. The New Zealand dollar eased slightly to $0.5776. Investors remain attentive to U.S. economic data and shifting inflation expectations as central banks navigate diverging policy paths.


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