Dollar Surge Pushes Yen to Nine-Month Low as Fed Rate Cut Odds Collapse

The Japanese yen tumbled to its lowest point in nine months during early Tuesday Asian trading, hitting 155.29 against the greenback. This sharp depreciation underscores a dramatic shift in market sentiment surrounding U.S. monetary policy, as investors increasingly doubt the Federal Reserve will ease rates at its December 10 meeting.

Rate Cut Expectations Eroding Rapidly

Market positioning reveals the speed of the sentiment reversal. Federal Reserve funds futures now price in merely a 43% probability of a 25-basis-point cut next month, a stark decline from the 62% odds observed just seven days earlier. This deterioration stems largely from resilience signals in the American employment sector, which has caught many market participants off guard.

Economists at ING cautioned that a December hold would likely represent “a temporary pause,” emphasizing that upcoming labor statistics—particularly the September payroll report due Thursday—will prove decisive for Fed policy direction. The central bank faces competing pressures: persistent inflation concerns weigh against emerging signs of labor market softness.

Japan’s Policymakers Voice Alarm

As the yen’s depreciation accelerated, Tokyo’s top financial officials registered formal complaints about the currency’s uncontrolled slide. Finance Minister Satsuki Katayama declared during a press briefing that “one-sided, rapid moves” in the forex market pose substantial risks to Japan’s economic stability. Her remarks reflect mounting anxiety that excessive yen weakness could trigger unwanted imported inflation and destabilize corporate earnings for exporters.

Today’s schedule includes a meeting between Prime Minister Sanae Takaichi and Bank of Japan Governor Kazuo Ueda, signaling Tokyo’s intention to coordinate messaging around currency stability—a concern that overshadows Takaichi’s historical preference for expansionary policies that typically support yen depreciation.

Mixed Labor Market Signals Complicate Fed Calculus

U.S. labor market deterioration emerged as the primary catalyst for shifting rate-cut expectations. Federal Reserve Vice Chair Philip Jefferson described hiring conditions as “sluggish,” with corporate managers displaying reluctance to expand payrolls amid economic uncertainty and artificial intelligence-driven workforce automation. Potential mass layoffs loom on the horizon, injecting volatility into Fed decision-making.

This mixed backdrop reverberated across asset classes. All three major U.S. equity indexes retreated, while Treasury yields moved in opposite directions: the two-year note’s yield compressed by 0.2 basis points to 3.6039%, whereas the 10-year tenor climbed 0.6 basis points to 4.1366%—indicating market participants hedged bets between growth concerns and inflation persistence.

Currency Markets Reflect Broader Uncertainty

Beyond the yen’s selloff, other major currencies experienced modest turbulence. The euro held steady near $1.1594, while sterling depreciated 0.1% to $1.3149, extending its losing streak to three consecutive sessions. The Australian dollar weakened to $0.6493, though the New Zealand dollar maintained relative stability at $0.56535.

These moves collectively suggest investors are repositioning ahead of Thursday’s crucial employment figures—a data point that could either restore conviction in Fed cuts or cement current skepticism about near-term easing.