Yen struggles, dollar declines on shutdown risks

The USDJPY extended its losses for the second successive session, trading around 148.70 on Monday. The pair depreciates as the dollar faces challenges due to concerns over the possible shutdown of the US government.

President Donald Trump is scheduled to meet congressional leaders on Monday to discuss government funding.

The shutdown could begin on October 1 in case of no deal, which will also coincide with new tariffs on trucks, pharmaceuticals and more. The standoff could also delay the September payrolls report and other key data, according to Reuters.

The dollar-yen pair depreciates as the greenback loses ground after the US August inflation report boosted the likelihood that the Federal Reserve will likely deliver another interest rate cut in October.

Markets are now pricing in an 88% chance of a Fed rate cut in October and a 65% possibility of another reduction in December, according to the CME FedWatch Tool.

In Japan, traders will likely observe the Bank of Japan Summary of Opinions and August Retail Trade data due on Tuesday. BoJ July minutes signaled policymakers remain open to further rate hikes if growth and inflation stay on track.

The Japanese yen may struggle amid political uncertainty. Japan’s Liberal Democratic Party (LDP) leadership election on October 4 could delay the BoJ’s next rate hike if a dovish candidate prevails.

(Source: OANDA)