Yen Weakens as French Fiscal Concerns Ease and BOJ Rate Hike Hopes Fade

The Japanese yen weakened in early Tokyo trading on October 7, falling to the 158 range against the dollar. As of 8:30 a.m., the yen was trading at 158.22-158.24 per dollar, down 0.12 yen from the previous day. This decline was driven by easing concerns in the European government bond market, particularly regarding French fiscal policy, which led to yen selling against the euro and, consequently, a weakening against the dollar.

The yen also weakened against the euro, trading at 178.09-178.13 per euro, down 0.38 yen from the previous day. The euro rose against the dollar to $1.1255, $1.1256 per euro. French fiscal concerns eased after Marine Le Pen signaled a commitment to reducing fiscal deficits, stabilizing the sell-off in French government bonds. This shift supported the euro and contributed to the yen's decline.

Expectations for an early rate hike by the Bank of Japan (BOJ) have receded, further weighing on the yen. BOJ Governor Kazuo Ueda stated that the central bank would assess economic and price outlook risks before adjusting rates. His remarks were not seen as signaling consecutive hikes, prompting yen selling. Reports from Reuters and Kyodo News also suggested caution within the BOJ about raising rates at the upcoming October 29-30 meeting.

Domestic factors, including the Government Pension Investment Fund (GPIF) not presenting a report on its portfolio review, and elevated U.S. interest rates, also contributed to the yen's decline. The U.S. services sector business activity index remained above 50, supporting higher U.S. long-term interest rates. Market attention now focuses on the BOJ's policy meeting and future U.S. economic indicators, with the Japan-U.S. interest rate differential expected to keep the yen's upside limited.