• The Japanese yen is under pressure due to the Bank of Japan's ultra-low interest rates and the U.S. dollar's consolidation.
• The yen's decline is also influenced by political uncertainty in Japan and divided analyst opinions on potential interest rate hikes.
• Economic data from China and the Bank of Japan's monetary policy are key factors in the global market.
• The global stock market rout and the unwinding of "carry trades" could be worsened by rapid interest rate cuts from the Federal Reserve.

The Japanese yen has been under significant pressure recently, with the Bank of Japan (BoJ) maintaining ultra-low interest rates. This comes as the U.S. dollar consolidates ahead of jobs data and the U.S. presidential election.

The Japanese currency has seen a significant decline this month as the dollar and U.S. Treasury yields have hovered around their highest since July. The yen has fallen more than 6% in October and is on track for its biggest monthly loss against the greenback since November 2016.

The political shake-up in Japan has only added to the yen's woes, increasing uncertainty about the country's fiscal and monetary policy outlook. The BoJ kept interest rates steady and maintained its forecast that inflation will hover near its 2% inflation target in the coming years, signaling its readiness to continue rolling back its massive monetary stimulus.

However, analysts are divided over the prospect of additional interest rate hikes by year-end, putting the focus on BoJ Governor Kazuo Ueda's post-meeting briefing for clues on the pace and timing of further increases.

The yen was down 0.02% at 153.34 versus the dollar, largely unchanged after the BoJ's decision as it hung not far off a three-month low of 153.885 hit on Monday. Sean Teo, a sales trader at Saxo, suggested that any strengthening of the yen at present would likely result from a general weakening of the U.S. dollar if interest rates begin to align.

Global Economic Indicators and Market Reactions

In addition to the BoJ's decision, markets received more economic data from China, with the National Statistics Bureau's manufacturing PMI showing activity in October expanded for the first time in six months. The official PMI rose to 50.1 in October from 49.8 in September, just above the 50-mark separating growth from contraction and beating a median forecast of 49.9 in a Reuters poll.

The Bank of Japan embarked on an ultra-loose monetary policy in 2013 to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank's policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity.

In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

The EUR/JPY cross attracts some sellers to near 165.85 during the Asian session on Thursday. The Bank of Japan (BoJ) decided to keep its policy rate unchanged, as widely expected. The Bank of Japan (BOJ) decided to keep the short-term interest rates target unchanged at 0.25% on Thursday and reiterated its forecast that inflation will persist near the 2% target.

Global Stock Market Rout and Carry Trade Unwind

The global stock market rout has a long way to go, analysis by a Wall Street bank has indicated, as European markets once again turn negative. JP Morgan analysts have issued the warning about so-called "carry trades", which are thought to have partly caused the turmoil on financial markets that wiped £40bn off the FTSE 100 on Monday. Carry trades involve borrowing at low cost in one currency to achieve higher returns from investments in another currency.

The global carry trade unwind, according to economists at TS Lombard, could be made worse by rapid interest rate cuts from the Federal Reserve. Stock markets in Europe were unsettled on Tuesday, paring earlier gains amid a faltering sense of relief. Rapid interest rate cuts from the Federal Reserve could make matters worse for the global carry trade unwind, according to economists at TS Lombard.

Some of the biggest companies in the stock market saw their values plummet. Apple (AAPL) declined about 5% amid the sell-off and news that Berkshire Hathaway (BRK-B) had cut its stake in the company in half. Nvidia (NVDA) pulled back over 6%. Tesla (TSLA) fell more than 4%. Crypto also took a beating, with bitcoin (BTC-USD) sinking more than 10% to creep back toward the $54,000 level.