USD/JPY remains firm above 158.00 as political uncertainty persists in Japan

USD/JPY Moves Higher Amid Japanese Political Uncertainty

During early trading in Asia on Tuesday, the USD/JPY pair is showing gains, hovering around 158.10. The Japanese Yen is weakening against the US Dollar as political developments in Japan fuel uncertainty. Investors are also awaiting the release of the US Consumer Price Index (CPI) data for December, scheduled for later in the day, which could influence market direction.

Japanese Political Developments Impact Yen

According to a Reuters report, Japanese Prime Minister Sanae Takaichi is considering calling a snap general election, potentially as soon as February. This would mark her first electoral test since taking office in October, providing an opportunity to leverage her strong approval ratings. However, the possibility of early elections is adding to political instability, which may weigh on the Yen and support further gains in the USD/JPY pair in the short term.

Concerns Over Fed Independence Affect the Dollar

Meanwhile, renewed doubts about the independence of the Federal Reserve could put downward pressure on the US Dollar. Fed Chair Jerome Powell revealed that he had faced threats of criminal charges from the administration regarding the renovation of the central bank's headquarters, describing these threats as an attempt to influence the Fed’s interest rate decisions. Fitch Ratings commented on Monday that the Fed’s independence remains a crucial factor supporting the United States’ AA+ sovereign credit rating.

“This open conflict between the Fed and the US administration is clearly negative for the US dollar,” remarked Ray Attrill, head of currency strategy at National Australia Bank.