Japanese Yen Remains Weak as Policy Uncertainty Weighs

Key Takeaways:

• The Japanese yen continues to underperform against major currencies, even as GBP/USD trends lower — highlighting yen-specific weakness.

• Bank of Japans cautious tone and uncertainty under the new Prime Minister Sanae Takaichi dampen expectations of imminent policy tightening.

• Subdued GDP growth and planned fiscal stimulus reinforce expectations that monetary policy will stay accommodative in the near term.

Market Summary:

The Japanese yen extended its weakness against major peers, including the U.S. dollar and British pound. While GBP/USD continues to trend lower, GBP/JPY has strengthened, underscoring persistent yen underperformance across the board.

Market participants remain uncertain about the Bank of Japans monetary policy outlook following cautious remarks from board member Junko Nakagawa, who emphasized that the BoJ would act carefully before raising rates due to ongoing global trade uncertainties. This cautious stance, combined with expectations of a $65 billion economic stimulus plan proposed by newly appointed Prime Minister Sanae Takaichi, suggests continued accommodative policy bias.

Japans latest GDP data added to the bearish sentiment, expanding only 1.8% YoY in September, below market expectations of 2.5%. The slowdown was largely driven by technical factors such as the reversal of front-loaded exports to the U.S. ahead of new tariffs, a slump in housing construction following stricter building standards in April, and inventory adjustments after strong first-half accumulation.

Business investment also softened, as weaker capital goods demand was only partially offset by steady spending on software and construction. Meanwhile, housing investment plunged sharply following the pre-regulation construction rush earlier this year. Overall, these developments reinforce expectations that Japan‘s recovery remains fragile, limiting the BoJ’s room for near-term tightening.