Written by Tom Westbrook
SINGAPORE (Reuters) – A sharp rise in the yen stabilized on Monday as Japan's next prime minister suggested monetary policy should remain accommodative, but the dollar remained buoyed by investors' hopes for an improvement in China's economy. The currencies of resource-rich countries fell.
Japan's yen soared on Friday after Shigeru Ishiba, a former defense minister who once criticized aggressive easing policies, became leader of the ruling Liberal Democratic Party, which controls parliament, and voted him prime minister.
The yen fell about 0.4% to 142.75 yen to the dollar, after rising 1.8% on Friday. Ishiba told public broadcaster NHK that from the government's perspective, given the current economic situation, policies need to remain accommodative in trend.
Analysts say that is enough to stop the yen's sharp rise after Ishiba's victory, and that the possibility of a snap election in the coming months, which Ishiba hinted at on Sunday, will weigh on the yen, at least in the short term. He said that there is a possibility that it will become a problem.
Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:), said: “The general election basically takes the Bank of Japan out of the picture until December…just a small yen minus.” said.
Elsewhere, the euro was steady at $1.1172 and the pound traded at $1.3381, with markets eyeing Friday's U.S. jobs report as the next key indicator to determine the pace of U.S. interest rate cuts.
European inflation figures to be released on Tuesday and China figures later on Monday are also eagerly awaited.
The Australian and New Zealand dollars traded near their 2024 highs hit on Friday, as interest rate cuts and hopes for Chinese fiscal support boosted hopes for an improvement in the slowing economy.
The Australian dollar rose 0.3% to US$0.6920, after rising to a 20-month high of US$0.6937 on Friday. The New Zealand dollar rose 0.3% to US$0.6360 after hitting its highest since December on Friday.
Last week, the Federal Reserve's recommended inflation measure showed inflation remained fairly moderate at 2.2% in the 12 months through August, sending U.S. yields and the dollar lower.
“The trend over the next year or so is going to be for the dollar to weaken,” said Joe Capurso, a strategist at Commonwealth Bank of Australia (OTC:).
“Inflation is under control. Interest rates are falling, which is good for the global economic outlook, good for risk-taking, and good for resource currencies like .”
Last week saw the best week in a decade as investors flooded into Chinese stocks, with a series of stimulus measures from the Chinese government driving stocks higher, even as interest rates were cut. The yuan broke through the psychological level of 7 yuan to the dollar in offshore trading on Friday and last closed at 6.9761 yuan, higher than onshore trading.
