USD/JPY climbs above 159.00 amid Japan's fiscal, political concerns

The USD/JPY pair jumps to near 159.15, the highest since July 2024, during the early Asian session on Wednesday. The Japanese Yen (JPY) weakens against the US Dollar (USD) amid concerns about looser fiscal and monetary policy in Japan. Traders will keep an eye on the US Retail Sales and Producer Price Index (PPI) reports, which will be published later on Wednesday. 

Political uncertainty in Japan could weigh on the JPY and create a tailwind for the pair in the near term. Japanese Prime Minister Sanae Takaichi may call an early general election in February, Reuters reported on Sunday.

“The implications for the yen are quite negative because Takaichi is a dove on both the fiscal and monetary fronts, so fiscally she would be very comfortable with a looser, higher deficit policy,” said Eric Theoret, currency strategist at Scotiabank in Toronto

On the other hand, the prospect of further US interest rate cut this year could drag the Greenback lower. The Consumer Price Index (CPI) inflation readings were seen as potentially giving the Federal Reserve (Fed) more room to cut rates as policymakers balance concerns about still sticky price pressures against a weakening labor market. 

After Fed Chair Jerome Powell and other policymakers deployed three rate cuts since September, Fed funds futures traders' pricing showed that a cut is not seen as likely until June.