The Japanese yen fell broadly in Asian markets on Monday at the start of the week against a basket of major and minor currencies, as selling pressure on the yen accelerated following Prime Minister Shigeru Ishiba’s announcement of his resignation in a press conference, stepping down from leadership of the ruling party, adding to political uncertainty in the world’s fourth-largest economy.

The end of Ishiba’s short tenure, which lasted less than a year, leaves markets cautiously awaiting the direction of Japan’s next government. Until a new leader of the Liberal Democratic Party is elected, uncertainty will continue to dominate the outlook for the country’s fiscal and monetary policies.

Price Overview

• Yen exchange rate today: the dollar rose against the yen by about 0.85% to ¥148.58, from Friday’s close at ¥147.35, and recorded a low of ¥147.91 during today’s session.

• The yen ended Friday’s session up about 0.8% against the dollar, marking a one-week high at ¥146.82, after bleak US labor market data strongly boosted expectations of at least two Federal Reserve interest rate cuts before year-end.

Ishiba’s Resignation

Prime Minister Shigeru Ishiba announced his resignation in a press conference on Sunday, after the ruling Liberal Democratic Party (LDP) suffered stinging electoral defeats recently that cost it a majority in both houses of parliament.

Ishiba explained that he chose the timing of his resignation after concluding a tariff-reduction agreement with the United States, which he described as a “national achievement,” calling it the “right moment” to step down and pass leadership to a new generation.

Political Uncertainty

Undoubtedly, Ishiba’s resignation will usher Japan into a new phase of political and economic instability at a time when it faces both domestic and external challenges, such as rising costs, escalating regional tensions, and global financial headwinds.

New Leadership

Ishiba confirmed he would continue his duties until a new party leader is elected, with the race now more open than ever. Names such as Sanae Takaichi, Shinjirō Koizumi, and Yoshimasa Hayashi are emerging as the top contenders to succeed him.

According to news reports, the party leadership election is expected to be held in October, amid an urgent need to restore internal stability and chart a new course for the post-Ishiba era.

Opinions and Analysis

• Carol Kong, currency strategist at Commonwealth Bank of Australia in Sydney: “Markets are worried that the next party leader will push for more fiscal expansion. Bottom line: the yen will remain under pressure in the near term.”

• Charu Chanana, chief investment strategist at Saxo: “With the LDP lacking a clear majority, investors will stay cautious until a successor is confirmed, keeping volatility high across yen, bonds, and equities.”

• Chanana added: “In the short term, this points to a weaker yen, a higher premium on Japanese government bonds, and a two-way flow in equities until the ruling party’s leadership outlook becomes clearer.”

• Hirofumi Suzuki, senior currency strategist at SMBC, on the Bank of Japan’s next step: “The probability of another rate hike in September was never high to begin with, and September will likely be a wait-and-see month.”

Sanae Takaichi

Investors are focusing on the possibility that Ishiba could be replaced by a figure supportive of easier fiscal and monetary policies, such as LDP veteran Sanae Takaichi, who has criticized the Bank of Japan’s rate hikes.

Ethereum prices rose during Friday’s trading amid strong demand for high-risk assets, particularly cryptocurrencies, following weak US employment data that reinforced expectations of the Federal Reserve resuming rate cuts at its upcoming meeting this month.

Data released Friday by the US Department of Labor showed the economy added only 22,000 jobs in August, compared with expectations of 75,000, marking a very negative report.

The data also revealed that the US unemployment rate rose to 4.3% in August, in line with analysts’ expectations.

Following this release, market bets increased that the Federal Reserve will cut rates at this month’s meeting, with the probability of a rate cut climbing to about 98%, according to the CME FedWatch tool.

Ethereum

As for trading, Ethereum rose 0.7% to $4,330.5 at 21:15 GMT.

Gold prices rose during Friday’s trading as the US dollar fell against most major currencies following the release of the monthly jobs report, which strengthened bets that the Federal Reserve will resume cutting interest rates at its upcoming meeting this month.

Data released Friday by the US Department of Labor showed the economy added only 22,000 jobs in August, compared with expectations of 75,000, a highly negative report.

The data also revealed that the unemployment rate in the US labor market rose to 4.3% in August, in line with analysts’ expectations.

After these figures, market bets increased that the Federal Reserve will cut interest rates at this month’s meeting, with the probability of a rate cut rising to about 98%, according to the CME FedWatch tool.

Meanwhile, the US dollar index fell 0.6% to 97.7 points at 20:10 GMT, after reaching a high of 98.2 points and a low of 97.4 points.

As for trading, spot gold rose 1.1% to $3,647.3 an ounce at 20:55 GMT, with the precious metal posting a 4% gain for the week.

Federal Reserve policymakers appear ready to begin a series of interest rate cuts this month to support a labor market that is becoming increasingly fragile, after a government report on Friday showed job growth nearly stalled and unemployment rose in August.

Although Fed Chair Jerome Powell will likely tread carefully with only 22,000 jobs added last month amid lower immigration rates, the rise in unemployment to 4.3%—the highest since October 2021—will sound alarm bells. With employers hiring at a very slow pace, Powell said last month that any increase in layoffs—still at historically low levels—could trigger a sharp jump in unemployment.

Friday’s data also showed that more than a quarter of the unemployed have been looking for work since at least February, just weeks after President Donald Trump began his second term in the White House. Unemployment among African Americans—who tend to be more vulnerable to labor market swings—rose to 7.5%.

The Fed will receive fresh inflation data next week as policymakers prepare for their September 16–17 meeting. Consumer prices are expected to accelerate further as Trump’s tariffs put greater upward pressure on the cost of basic goods.

Nevertheless, weaker-than-expected jobs data has pushed concerns about labor market deterioration to the top of the Fed’s priority list. The central bank has kept its benchmark rate in the 4.25%–4.50% range all year.

Analysts at Bank of America said after the jobs report: “The August jobs report should cement the Fed’s shift from worrying about inflation to focusing on labor market weakness.” They now expect a quarter-point cut in September and another in December, with the benchmark rate falling to 3.00%–3.25% by the end of next year.

Why Did Unemployment Rise?

In recent months, unemployment remained low, but not for ideal reasons; the main factor was shrinking labor force participation.

In August, however, unemployment rose partly because more people reentered the labor market to look for jobs, according to the Bureau of Labor Statistics (BLS).

The latest household survey data showed the labor force, which had contracted for three straight months, grew by 436,000 people in August. Labor force participation also rose to 62.3% from 62.2%.

While most of this growth came from people classified as employed, the rise in the number of unemployed was largely due to those reentering the labor market and actively seeking work.

Jennifer Timmerman, senior investment strategist at Wells Fargo Investment Institute, wrote in a Friday note: “In fact, the average job search duration fell to a three-month low, which is a bright spot in what was otherwise a weak jobs report.”

Trump’s Pressure

At the annual Jackson Hole symposium two weeks ago, Powell hinted at a possible September cut by highlighting downside risks in the labor market, though he also noted that a stable jobs environment would allow the Fed to “proceed cautiously.”

Kevin Hassett, the White House economic adviser, said Friday that the latest jobs report could push the Fed to consider a larger cut this month. This view aligns with Trump’s persistent demands for lower borrowing costs, part of his growing efforts to assert control over the central bank. Hassett is among the names Trump has said he is considering to succeed Powell when his term ends in May.

Even so, markets still see an outsized cut this month as unlikely. Futures tied to interest rates show only about a 10% chance of a half-point cut in September, up from zero before the jobs report.

Most expectations remain centered on a quarter-point cut, with similar moves likely in subsequent meetings, and nearly a 50-50 chance that the benchmark short-term rate will be a full percentage point lower by January compared with today.

Not all analysts ruled out a stronger response. Simon Dangoor, head of fixed-income macro strategies at Goldman Sachs Asset Management, said: “Today’s data suggests there’s a risk the Fed begins easing at a faster pace than the cautious path Powell outlined at Jackson Hole.”