Dollar Strength Drives Yen to Nine-Month Low as Fed Rate Cut Bets Cool

The Japanese yen faces a critical moment, plunging to its weakest level in over nine months as the greenback extends its rally. The currency pair hit 155.29, reflecting a marked shift in Federal Reserve policy expectations heading into December’s meeting.

Market Dynamics Shift Amid Fed Uncertainty

The pivot away from anticipated rate cuts is reshaping currency valuations across Asia. Futures markets now price in merely a 43% probability of a 25-basis-point reduction from the Fed, a dramatic reversal from the 62% odds recorded just seven days prior. This swing in expectations has repositioned the dollar as the preferred safe-haven asset, directly pressuring the yen lower to test fresh low face levels.

Traders are increasingly focused on Thursday’s U.S. employment data release, anticipated as a critical catalyst that could either reinforce or challenge current Fed pause narratives. ING analysts noted that even if policymakers hold steady in December, such a move would likely constitute “a temporary pause” rather than a commitment to maintaining elevated rates long-term.

Japanese Policymakers Sound Alarm

Tokyo’s response was swift and forceful. Finance Minister Satsuki Katayama publicly flagged concerns about “one-sided, rapid” currency movements and their potential drag on economic growth. The timing coincides with planned discussions between Prime Minister Sanae Takaichi and Bank of Japan Governor Kazuo Ueda, signaling elevated concern at the highest policy levels.

Labor Market Weakness Compounds Uncertainty

Fed officials highlighted deteriorating labor market conditions on Monday, with Vice Chair Philip Jefferson describing the sector as “sluggish.” Corporate hiring hesitancy is intensifying amid artificial intelligence adoption and shifting business strategies, amplifying recession concerns among investors.

The mood in equity markets reflected this anxiety, with all three major U.S. stock indexes closing lower. Treasury yields recalibrated accordingly: the two-year note retreated 0.2 basis points to 3.6039%, while the ten-year ascended 0.6 basis points to 4.1366%.

Global Currency Repricing

The yen’s weakness is occurring within a broader currency realignment. The euro held steady at $1.1594, while sterling declined 0.1% to $1.3149, marking its third consecutive session of losses. The Australian dollar compressed to $0.6493, and the New Zealand dollar remained anchored at $0.56535.

For markets, this convergence of forces—fading Fed easing expectations, labor market slack, and dollar strength—creates a powerful headwind for yen recovery, keeping the currency pressured toward these low face levels amid ongoing macro uncertainty.