Title: Yen Faces Steepest Weekly Decline Since October as U.S. Election Looms
By: Masaki Kondo
Source: Bloomberg (Original article link: Bloomberg.com, published February 5, 2026)
The Japanese yen is on track for its largest weekly drop since October 2025, driven by a confluence of global economic indicators, central bank policies, and mounting anticipation surrounding the upcoming U.S. presidential election. As financial markets respond to shifting risk sentiment and policymakers’ divergent stances, the currency is vulnerable amidst broader volatility.
Key developments this week have reinforced the dollar’s dominance, applying downward pressure on the yen. The stronger greenback, coupled with improving U.S. economic data and yields edging higher, have led traders to seek refuge in American assets. Meanwhile, soft economic readings from Japan and a continued dovish tone from the Bank of Japan (BOJ) have accelerated the yen’s slide.
This article examines the drivers behind this notable depreciation in the yen, the market implications, and how upcoming political and monetary events globally are amplifying currency market moves.
Yen at Multi-Month Lows
– The Japanese yen weakened by over 2% this week against the U.S. dollar, marking its sharpest weekly decline since late October 2025.
– As of Thursday’s close, the dollar was trading near 152 yen, with analysts pointing to the psychological barrier of 155 as the next test should weakness persist.
– Sliding from the 147-148 range earlier this month, the yen has seen renewed selling pressure, particularly as U.S. Treasury yields have climbed and U.S. data surprised to the upside.
Global Market Drivers Behind Yen’s Decline
Multiple global developments have converged to push the yen lower:
1. Stronger U.S. Economic Data:
– Services ISM data and other economic indicators have signaled continued strength in U.S. consumption and employment.
– The U.S. labor market remains resilient, fueling expectations that the Federal Reserve may delay interest rate cuts.
– Market participants now foresee Fed cuts potentially starting later in the year, reducing the attractiveness of low-yielding currencies like the yen.
2. Higher U.S. Yields:
– U.S. 10-year Treasury yields have climbed above 4.3%, the highest in several weeks.
– Rising yields make the dollar more attractive relative to the yen and other lower-yielding currencies, further widening interest rate differentials.
3. Bank of Japan’s Steady Hand:
– The BOJ has retained its dovish monetary stance despite elevated inflation pressures.
– Policy rates remain in negative territory, discouraging capital inflows and putting downward pressure on the currency.
– Governor Kazuo Ueda has maintained a cautious approach toward policy normalization, hinting that any changes will be gradual and conditional on sustained wage growth.
4. Political Uncertainty in the U.S.:
– The coming 2026 U.S. presidential election is adding volatility to markets.
– Investors are adjusting their currency positions ahead of what could be a contentious and unpredictable voting season.
– The election introduces event risk, but so far has favored the dollar as a perceived safe haven compared to the historically less stable yen.
5. Diminished Haven Demand:
– The yen often functions as a safe-haven asset during times of global instability.
– However, this traditional role has weakened in recent months.
– With geopolitical risk relatively contained and equity markets buoyant, safe-haven currencies are underperforming.
Market Reactions Across Asia and Beyond
Asian stocks and currency markets have responded to these developments in varying ways:
– Japanese exporters have benefitted from the yen’s weakness, providing a short-term lift to equities on the Tokyo Stock Exchange.
– However, importers and households face rising cost pressures from more expensive foreign goods.
– Regional currencies, including the Korean won and Chinese yuan, have followed the yen downward
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