Yen Fades to Nine-Month Low as Market Bets on Fed Rate Cut Continue to Erode

Japanese currency hit its lowest level in over nine months this week, pressured by a strengthening dollar as investors dramatically reduced their bets on a Federal Reserve rate cut scheduled for December 10. The yen’s decline has triggered alarm bells in Tokyo, with government officials warning of potential economic spillovers from the currency’s rapid depreciation.

Dollar Surge Reflects Dimming Rate Cut Expectations

The yen fell to 155.29 per dollar during Asian trading Tuesday—a nine-month low that underscores the shifting dynamics in the foreign exchange market. This move reflects a crucial shift in market sentiment regarding the Fed’s monetary policy trajectory. Futures markets now price in only a 43% probability of a 25-basis-point rate cut in December, a sharp reversal from 62% probability just one week prior.

The anticipated U.S. payroll figures due Thursday are expected to be the key determinant of market direction. With Fed funds futures pointing to a increasingly hawkish stance, analysts at ING cautioned that if the Fed holds rates steady in December, “it is likely to be a temporary pause,” emphasizing that employment data will remain the primary driver of future policy decisions.

Tokyo’s Growing Concern Over Currency Weakness

Japan’s Finance Minister Satsuki Katayama expressed significant concern during remarks to the press, characterizing the yen’s moves as “one-sided and rapid” and warning of potential negative consequences for the broader economy. The developments have prompted a high-level meeting between Prime Minister Sanae Takaichi and Bank of Japan Governor Kazuo Ueda to address the currency volatility.

The timing is noteworthy given Takaichi’s historical advocacy for expansionary policies that often result in yen depreciation, suggesting potential policy tensions as officials grapple with the currency’s weakness.

U.S. Labor Market Weakness Reshapes Rate Cut Outlook

The shift in Fed rate cut expectations stems partly from emerging concerns about the American labor market. Federal Reserve Vice Chair Philip Jefferson described labor conditions as “sluggish” on Monday, noting that employers are becoming increasingly cautious about hiring amid evolving business dynamics and the expanding role of artificial intelligence.

These labor market concerns created a ripple effect across global financial markets. All three major U.S. stock indexes declined as investors repositioned for lower growth prospects. Treasury yields showed mixed signals: the two-year yield fell 0.2 basis points to 3.6039%, while the 10-year yield rose 0.6 basis points to 4.1366%, reflecting uncertainty about the economic path ahead.

Broader Currency Market Fallout

The yen’s depreciation was part of a broader shift in currency markets. The euro held relatively flat at $1.1594, while the British pound declined 0.1% to $1.3149—marking its third consecutive day of losses. The Australian dollar weakened to $0.6493, though the New Zealand dollar remained stable near $0.56535.

These movements collectively suggest investor caution is spreading across multiple asset classes as the market awaits critical U.S. labor data that could reset expectations for both the Fed’s near-term policy path and the health of the American economy.