USD/JPY climbs as Yen weakens on BoJ caution, US fiscal progress

• The Japanese Yen loses ground against the US Dollar as markets question the timing of the next Bank of Japan rate hike.
• Fiscal support announced by Japan's Prime Minister Sanae Takaichi reinforces expectations of continued monetary accommodation.
• The US Dollar edges higher, supported by Congressional progress toward ending the US government funding deadlock.

USD/JPY holds around 154.00 on Monday at the time of writing, up 0.40% on the day, close to its eight-month high of 154.49. The pair remains supported by the persistent weakness of the Japanese Yen (JPY), pressured by uncertainty over the Bank of Japan (BoJ)'s policy outlook.

Markets doubt the likelihood of an imminent BoJ rate increase after the cautious comments from board member Junko Nakagawa, who said the central bank would act carefully given ongoing global trade uncertainties. This prudence, combined with the prospect of a $65 billion economic stimulus plan promoted by new Prime Minister Sanae Takaichi, fuels expectations that monetary policy will remain accommodative.

The Japanese Yen is also weighed down by weaker-than-expected domestic data. Household spending rose just 1.8% YoY in September, below the 2.5% forecast, while private consumption shows signs of cooling.

On the US side, the US Dollar (USD) is modestly rebounding after several days of decline, supported by progress in the US Senate toward passing a bill extending federal funding through January, which helps ease fears of another government shutdown. The US Dollar Index (DXY) consolidates around 99.60, helped by the prospect of reopening federal agencies and resuming the release of key economic data, including the Nonfarm Payrolls (NFP) and the Consumer Price Index (CPI).

According to the CME FedWatch tool, markets now assign a 63% chance to another rate cut at the December meeting of the Federal Reserve (Fed). Cautious remarks from Fed officials such as Alberto Musalem (St. Louis Fed) and Mary Daly (San Francisco Fed) suggest that the central bank remains open to further easing while acknowledging the resilience of the US economy.

Thus, while USD/JPY remains upward-biased in the short term, its appreciation potential appears limited by the BoJ's cautious stance and expectations of prolonged monetary easing in the United States.