Dollar vs yen: Surprise in Japan’s leadership race jolts financial markets

admin — Mon, 06 Oct 2025 02:30:08 +0000

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An unexpected result in Japan’s leadership contest over the weekend rippled through global financial markets with the dollar surging against the yen on Sunday.

On Saturday, the ruling Liberal Democratic Party tapped Sanae Takaichi, positioning the conservative lawmaker to become Japan’s first female prime minister.

Markets had expected the more fiscally cautious Shinjiro Koizumi to win. But the LDP’s decision to go with Takaichi, who favors looser fiscal and monetary policies, could raise expectations that Tokyo will issue more debt while the central bank rethinks rate hikes.

With Japan’s debt burden already more than 200% of its GDP, the prospect of more debt-fueled stimulus spending could cause investors to demand higher rates on long-term bonds.

That in turn could add more upward pressure on bond yields elsewhere, like the U.S., which relies heavily on Japanese investors as top buyers of Treasury debt.

The yield on the 10-year Treasury rose 1.9 basis points to 4.138%. The U.S. dollar was up 1.5% against the yen and up 0.2% against the euro.

Futures tied to the Dow Jones Industrial Average rose 40 points, or 0.1%. S&P 500 futures were up 0.18%, and Nasdaq futures added 0.27%. Japan’s Nikkei 225 index jumped 4% to a record high.

U.S. oil prices rose 1.35% to $61.70 per barrel, and Brent crude added 1.3% to $65.37. Gold edged up 0.47% to $3,927.30 per ounce.

Takaichi is expected to formally become prime minister in a parliamentary vote later this month, and her approach to President Donald Trump will also be scrutinized.

While she previously suggested Japan renegotiate the trade deal it struck with the U.S. this summer, Takaichi toned down her rhetoric after securing the LDP leadership spot on Saturday, saying that’s not on the table now.

Meanwhile, financial markets must continue to grapple with the ongoing government shutdown, which shows no signs of ending anytime soon and will keep key economic indicators under wraps.

That leaves Wednesday’s release of minutes from the Federal Reserve’s last policy meeting as the main economic report to watch in the coming week as the central bank is self-funded and unaffected by the shutdown.

Several Fed officials are also scheduled to speak throughout the coming week, including Chairman Jerome Powell on Thursday.

Because the government shutdown prevented the Bureau of Labor Statistics from issuing its jobs report for September on Friday, Wall Street is turning to alternate gauges from the private sector.

On Sunday, Moody’s Analytics chief economist Mark Zandi warned there was essentially no job growth in September, citing data from Revelio Labs and ADP.

“The bottom line is that not having the BLS jobs data is a serious problem for assessing the health of the economy and making good policy decisions,” he said in a series of posts on X. “But the private sources of jobs data are admirably filling the information gap, at least for now. And this data shows that the job market is weak and getting weaker.”

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Reports should confirm Powell's hint that rates are coming down

admin — Mon, 25 Aug 2025 07:35:53 +0000

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Typically, the last week of August is something of a let-down.

It’s just ahead of Labor Day. Market activity tends to slow way down because so many on Wall Street are headed to the beach or the mountains.

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But the economic reports keep on coming, and the week ahead will offer food for thought on top of Federal Reserve Chairman Jerome Powell’s speech last week that signaled the Federal Reserve may cut its federal funds rate at its Sept. 16-17 meeting.

The financial markets see it coming. Stocks soared in response to Powell’s speech. The CME FedWatch Tool puts the odds of a rate cut to 4% to 4.25% at about 85%. It has been higher, and other market measures puts the odds close to 100%.

Ian Shepherdson of Pantheon Economics believes Powell’s speech practically guarantees a rate cut in September “and more likely to follow.”

How: One phrase: “The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” That is, to move rates lower. And, maybe, more quickly.

A softening labor market

The reason: continued job weakness in the next few months as more evidence emerges on what rising tariffs are doing to the economy.

A second reason: The Trump Administration is on a quest to find a new Fed chairman who will support lower interest rates more aggressively than Powell has been in the last few years.

(The unspoken theme is that Trump’s Administration is seeking more direct control of the levers of the economy than any administration in years.)

The federal funds rate now is 4.25% to 4.5%. It is the rate the Fed wants member banks to charge each other for overnight loans. It sounds esoteric, but it is the starting point for all short-term U.S. loans.

Mortgage rates are more dependent on changes in the U.S. 10-year Treasury yield.

Freddie Mac, the big supplier of capital to the housing market said the 30-year mortgage rate late last week was 6.58%, down from 7% or so on January 16.

Two reports this week will likely cinch the deal:

The weekly report on initial jobless claims, due Thursday morning from the Bureau of Labor Statistics.
The Commerce Department’s Personal Consumption Expenditure Index (PCE) for July on Friday. This report is the Fed’s preferred measure of consumer inflation.

In the meantime, stock futures trading suggests U.S. markets will open modestly lower on Monday after Friday’s huge gains.

The Dow Jones Industrial Average jumped 846 points on Friday to 45,632 in its fourth-largest point gain of the year. The iShares U.S. Home Construction exchange-traded fund ITB jumped 5.6% in reaction to Powell’s Jackson Hole, Wyo., speech.

The first is, admittedly, a very rough estimate of what’s happening in the job market. But it has to show increasing numbers of workers filing for unemployment compensation. It’s been slowly ticking higher for the last few weeks, and the Fed, not to mention the Trump Administration, will be watching the report carefully. That data will feed into the BLS’ big report, the August jobs report, due on Sept. 5.

The latter has to show that inflation is stable or coming down a bit, giving the Fed room to make the cut that many people want. In June, the index was up 2.6% from a year earlier and 2.8% once food and energy costs were stripped out.

Construction workers build a new home on a property in Altadena, Calif.

Mario Tama/Getty Images

Other reports will likely confirm the idea the U.S. economy is slowing.

New-home sales in July

Due Monday from the Commerce Department, it may show a small increase in July in the neighborhood of 625,000 to 630,000 units (annualized) in July thanks to three factors:

Mortgage rates are slightly lower.
Builders are interested in selling houses now, and big builders, especially, give buyers a break on mortgages for one to three years.
Builders are constructing smaller dwelling units.

But new-home sales have yet to recover from the debacle of the subprime mortgage crisis.

More Economic Analysis:

Durable goods orders for July

Due Tuesday from the Commerce Department report. The report focuses on new orders for long-lasting manufactured goods placed with domestic US manufacturers. June’s report showed a 9.3% decline.

Pending home sales for July.

Due Thursday from the National Association Realtors. The report is a snapshot of contracts signed to buy homes in the next two months. The index fell 0.8% in June.

Keep an eye on . . .

The first revision to the second-quarter estimate of Gross Domestic Product. The first estimate, released on July 30, showed economic growth increasing at an annualized 3% rate.

Two reports on Consumer Confidence. First from the Conference Board on Tuesday and then the Michigan Consumer Sentiment Index, from the University of Michigan on Friday. These reports have big swings because each focuses on attitudes and confidence.

Fed speak. Dallas Federal Reserve Bank President Laurie Logan and John William, president of the New York Fed both speak on Monday.