Yen Slips Ahead of BOJ Policy Outlook and Japan Leadership Election

The Japanese yen edged lower on Friday, trimming its strongest weekly gain in over four months as traders weighed potential Bank of Japan (BOJ) policy moves and this weekend’s ruling party leadership election. The yen slipped 0.3% to 147.72 per dollar, though it remained on track for a 1.2% weekly gain, the largest since mid-May.

BOJ Governor Kazuo Ueda struck a cautious tone, stressing risks from the global economy and downplaying the likelihood of an imminent rate hike. Economists at Goldman Sachs echoed this view, saying the probability of an October rate increase is “very low.” Deputy Governor Shinichi Uchida earlier noted improving business sentiment and strong corporate profits, though Ueda’s comments highlighted how U.S. economic health could shape Japan’s wage and price outlook.

Political uncertainty also weighed on sentiment. The Liberal Democratic Party (LDP) will elect its next leader—and Japan’s prime minister—on Saturday. Market watchers suggest a victory by dovish candidate Sanae Takaichi could unsettle bond markets, while contenders Yoshimasa Hayashi and Shinjiro Koizumi are seen as policy-stable options.

Meanwhile, the dollar rebounded modestly despite a U.S. government shutdown halting key data releases, including September’s nonfarm payrolls report. A Chicago Fed estimate suggested unemployment held steady at 4.3% in September, while ADP data pointed to weaker private hiring. Traders now price in an almost certain 25-basis-point Federal Reserve cut in October and a high probability of another in December. Dallas Fed President Lorie Logan noted that while last month’s cut cushioned downside risks, further easing is not urgent.

Elsewhere, the Canadian dollar hit a four-month low at 1.3968 per U.S. dollar as oil prices slid and uncertainty grew over North American trade negotiations.

The dollar index firmed to 97.90, while the euro inched up to $1.1722 and sterling held at $1.3437. With BOJ policy uncertainty and Japan’s political shift looming, investors remain cautious as global currency markets navigate both U.S. and Japanese crosswinds.