Yen Under Pressure Amid U.S. Dollar Strength and Political Uncertainty

The yen is facing significant pressure with its biggest monthly loss since 2016, following the Bank of Japan's decision to maintain ultra-low interest rates. The situation is compounded by political shifts in Japan and strong U.S. economic data. Analysts remain divided on future interest rate hikes.

The Japanese yen remained under pressure on Thursday after the Bank of Japan opted to maintain its ultra-low interest rates. Meanwhile, the U.S. dollar is consolidating its position ahead of key jobs data release and the upcoming U.S. presidential election. October has seen the yen drop over 6%, marking its largest monthly decline against the dollar since 2016, fueled by Japan's political upheaval and uncertainty around fiscal policy.

The BOJ's decision to keep interest rates steady aligns with its inflation forecasts, maintaining a focus on the 2% target. However, the uncertainty around potential further rate hikes by year-end is driving analysts' attention towards BOJ Governor Kazuo Ueda's briefing for insights. Despite the BOJ's stance, the yen slipped 0.02% to 153.34 against the dollar, near its recent three-month low. Sean Teo of Saxo pointed out that yen strengthening could occur if U.S. interest rates align and weaken the dollar.

On the geopolitical front, U.S. nonfarm payrolls close out the week amid speculation over the presidential election outcomes. Current polls present a tight race between Donald Trump and Kamala Harris. In the broader market, economic indicators show stability with U.S. growth at 2.8% for Q3, and the euro and sterling adjusting to regional economic conditions and data. Analysts note the significance of the upcoming data and political developments on currency movements.

(With inputs from agencies.)