SINGAPORE, Oct 21
The yen declined after the election of Sanae Takaichi as Japan’s first female prime minister, spurring investor speculation about a challenging interest rate landscape and potential increases in government spending.
Takaichi, who leads the ruling Liberal Democratic Party, secured victory in a lower house ballot on Tuesday, setting the stage for her to assume office that same day.
This outcome was largely expected by market participants, especially given Takaichi’s backing from the right-wing opposition party, Ishin. Nevertheless, the yen continued its downward trajectory following the election results.
Currently, the yen sits at 151.38 to the dollar, reflecting a 0.4% drop.
Hirofumi Suzuki, a chief strategist for foreign exchange at Sumitomo Mitsui Banking Corporation, commented on the situation, saying, “There are hopes for fiscal stimulus, but due to the challenges in policy management, we might not see anything too aggressive.” He added, “A sudden drop in the yen is likely to be avoided, yet we expect continued gradual pressure for depreciation.”
Local reports early Tuesday indicated that Takaichi is likely to appoint former regional revitalization minister Satsuki Katayama as the new finance minister.
In a prior interview with Reuters, Katayama expressed aspirations for yen appreciation, suggesting her appointment could lead to a reevaluation in the market regarding excessive yen depreciation.
Nonetheless, Takaichi’s push for fiscal stimulus and monetary easing has unsettled investors, making it harder for the Bank of Japan to consider raising interest rates. Fred Newman, HSBC’s chief economist for Asia, noted, “From a political standpoint, we may need to think about postponing monetary tightening until fiscal easing is on course. This puts the Bank of Japan in a tough spot.”
The yen faced challenges against other currencies, with the euro rising 0.33% to 176.06 yen and the pound increasing 0.28% to 202.55 yen.
Waiting for Fed response
Currency trading on Tuesday mostly remained within established ranges, although the dollar bounced back from an early dip amid a weaker yen.
The pound fell slightly, by 0.16%, to $1.3383, and the euro decreased by 0.1% to $1.1630, showing minimal support from reduced political uncertainty in France.
The US dollar index saw a rise of 0.16%, reaching 98.77, while the Australian dollar slipped 0.21% to $0.6499.
Market sentiment appeared positive after US President Donald Trump indicated on Monday that a trade deal with Chinese President Xi Jinping was on the horizon. Additionally, White House economic adviser Kevin Hassett remarked that the ongoing 20-day federal government shutdown is likely to end this week.
Even as concerns about credit risks among US banks eased somewhat, this optimism failed to significantly influence currency movements, as investors stayed cautious ahead of a series of key upcoming events, particularly the Federal Reserve’s policy meeting.
Ray Attrill, head of currency research at National Australia Bank, posited, “Next week is probably set to be quite significant in terms of risk.” He added, “Considering market expectations, there’s a possibility that next week’s discussions about a rate cut could create some uncertainties regarding the current confidence in an additional rate cut come December.”
Among other currencies, the New Zealand dollar fell 0.3% to $0.5727 after the People’s Bank of China established a stronger midpoint, while the onshore yuan climbed slightly to 7.1183 per dollar.
