USD/JPY gains as Yen softens on dovish BoJ stance, US shutdown optimism

• The Japanese Yen declines as Takaichi calls for a supportive monetary policy to sustain the recovery.
• Hopes for a deal to end the US government shutdown reduce demand for safe-haven assets.
• Expectations of Federal Reserve rate cuts limit the upside potential of the US Dollar.

USD/JPY trades around 154.85 on Wednesday at the time of writing, up 0.50% on the day. Comments from Japan's Prime Minister Sanae Takaichi have reignited speculation about a looser fiscal stance and a cautious approach by the Bank of Japan (BoJ) regarding further rate hikes. Takaichi reiterated that inflation should be driven by wage growth rather than food price increases, stressing the need for close coordination with the BoJ to ensure a sustainable recovery.

This stance reinforces the view that the BoJ may delay its next rate hike, possibly beyond December, despite recent signals of internal debate about gradually normalizing monetary policy. Meanwhile, the Japanese government is preparing an economic stimulus package, due on November 21, that is expected to encourage the BoJ to maintain accommodative financial conditions to support growth. These factors continue to weigh on the Japanese Yen (JPY), already weakened by a renewed global risk-on sentiment.

The prospect of a deal to reopen the US government, after the longest shutdown in the nation's history, is also undermining demand for safe-haven assets such as the Japanese Yen. However, caution remains as some market participants believe Japanese authorities could step into the foreign exchange market if the JPY weakens further.

In the United States (US), the recent deterioration in the labor market, with private employment averaging a loss of 11,250 jobs per week in the previous 4-week period, according to ADP, has strengthened expectations of another Federal Reserve (Fed) rate cut in December. This outlook limits the upside potential for the US Dollar (USD), despite its short-term rebound.

With no major US economic data due on Wednesday, investors are focusing on speeches from Federal Open Market Committee (FOMC) members for clues about the Fed's monetary path.