Dollar Surge Triggers Japanese Yen's Lowest Point in Nine Months Amid Fading Rate Cut Odds

The Japanese yen slid to a nine-month low on Tuesday as the U.S. dollar strengthened, driven by rapidly fading expectations for a Federal Reserve interest rate reduction in December. The yen traded at 155.29 per dollar during early Asian trading, reflecting shifting market sentiment regarding the Fed’s monetary policy trajectory.

Market Sentiment Shifts on Cooling Rate Cut Expectations

The dramatic turnaround in rate cut probability tells the story. Just a week ago, market participants priced in a 62% chance of a 25-basis-point Fed reduction at the December 10 meeting. That figure has now compressed to just 43%, a significant shift that’s putting downward pressure on the yen while strengthening the dollar’s appeal.

According to analysts at ING, even if the Federal Reserve decides to hold rates steady in December, it’s likely to be merely a temporary pause. The real driver of future Fed decisions will be upcoming employment data, with Thursday’s September payroll release expected to be particularly influential for market movements.

U.S. Labor Market Weakness Fuels Economic Uncertainty

Federal Reserve officials acknowledged growing concerns about the labor market’s trajectory on Monday. Fed Vice Chair Philip Jefferson characterized hiring conditions as “sluggish,” with companies growing more cautious about expanding their workforce. Reports of potential layoffs and hesitant recruitment are emerging as businesses navigate shifting economic conditions and increased artificial intelligence adoption.

This labor market softness has rippled across U.S. equity markets, with all three major stock indexes posting declines. The two-year Treasury yield fell 0.2 basis points to 3.6039%, while the 10-year note inched up 0.6 basis points to 4.1366%.

Japanese Officials Express Alarm Over Rapid Currency Depreciation

Japan’s Finance Minister Satsuki Katayama voiced serious concerns during Tuesday’s press conference, warning against “one-sided, rapid moves” in foreign exchange markets and their potential economic ramifications. Prime Minister Sanae Takaichi is scheduled to meet with Bank of Japan Governor Kazuo Ueda later today to discuss the currency situation.

Broader Currency Market Movements

Beyond the yen, other currencies showed mixed performance. The euro held steady at $1.1594, while the British pound declined 0.1% to $1.3149, now down for three consecutive trading sessions. The Australian dollar fell to $0.6493, and the New Zealand dollar remained relatively stable at $0.56535, as risk sentiment continues to weigh on commodity-linked currencies.