SINGAPORE: The yen rose in Asian trading on Monday after Japanese Prime Minister Sanae Takaichi won a landslide victory in Sunday’s general election, abruptly reversing six days of losses as traders bet that fiscal stimulus would help boost stock markets.
The yen rose as much as 0.7%, reversing a 0.3% decline that hit a two-week low and leveling out its gains. The stock was last traded at 156.76 yen, up 0.3% against the dollar.
The yen also recovered its losses against other currencies, earlier hitting an all-time low against the Swiss franc and trading near its lowest level since the creation of the euro.
“While the initial weaker yen may not have been reflected, the outlook for the yen is still likely to struggle towards a stronger yen,” said Sim Moe Siong, currency strategist at OCBC in Singapore.
“At least in the short term, there are also concerns about intervention risks, which may be holding back the dollar/yen’s upside.”
Japan’s top currency diplomat, Atsushi Mimura, said early Monday that the government is “watching currency developments closely with a high sense of crisis” after Takaichi’s coalition won a historic election victory.
Takaichi is expected to give the Liberal Democratic Party up to 328 seats out of the 465 seats in the House of Representatives. Together with his coalition partner Nihon Ishin no Kai (known as Ishin), Takaichi now has a two-thirds supermajority of seats, allowing him to overturn the Senate, which Takaichi does not control.
“The Liberal Democratic Party’s landslide victory removes political uncertainty and strengthens policy enforcement, but the market’s focus shifts squarely to how fiscal policy is designed and communicated,” said Aki Omori, chief desk strategist for interest rates and foreign exchange at Mizuho Bank in Tokyo.
“The risks of fiscal expansion were almost already priced in before the election,” he added. “The key question now is whether these risks will intensify or gradually ease.”
The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was flat at 97.629 at the start of the week, with several key data releases expected from Washington, including retail sales, inflation and jobs data delayed on Wednesday.
Traders are increasing bets that the U.S. Federal Reserve will ease policy later this year. Federal funds futures are currently pricing in a 19.9% implied probability of a 25 basis point rate cut at the next two-day U.S. central bank meeting on March 18, up from an 18.4% probability on Friday, according to CME Group’s FedWatch tool.
Sterling last fell 0.1% to $1.3599 as markets weighed developments in the political crisis surrounding British Prime Minister Keir Starmer, whose chief of staff Morgan McSweeney resigned on Sunday. Mr McSweeney said he was responsible for advising Mr Starmer to nominate Peter Mandelson as ambassador to the US despite his known links with Jeffrey Epstein.
The US dollar was almost flat at 6.9317 yuan against the Chinese yuan traded offshore in Hong Kong.
The Australian dollar was last up 0.1% at $0.7018, the New Zealand dollar was up 0.1% at $0.6013, and the euro was flat at $1.1818.
Bitcoin was last down 0.3% at $70,454.92, and Ether was down 0.9% at $2,074.89. (Reporting by Gregor Stuart Hunter; Editing by Lincoln Feast and Thomas Derpinghaus)
Reuters
