TOKYO
The yen dropped on Monday as it seems almost certain that Sanae Takaichi, a proponent of fiscal and monetary stimulus, will become Japan’s next prime minister after gaining crucial political support for the role.
With trade tensions easing somewhat between China and the US and worries about US regional banks calming down, the appeal of safe-haven currencies improved. This situation helped lift the risk-sensitive Australian dollar.
Markets largely overlooked China’s GDP figures, which showed annual growth slowing to 4.8% for the latest quarter, aligning with economists’ predictions.
Investors shifted back to what’s known as the “high market trade”—in other words, high stock prices paired with a weak yen—following reports that the ruling Liberal Democratic Party and the Japan Restoration Party would enhance cooperation. A vote for the new prime minister is set for Tuesday.
Takaichi’s chance to be Japan’s first female prime minister became uncertain after she unexpectedly parted ways with Komeito, her party’s coalition partner for 26 years, earlier in the month. Yet, the right-leaning Japan Innovation Party has partnerships that resonate more closely with her policy stances.
At 0210 GMT, the dollar rose 0.3% to 150.96 yen after having fallen as much as 1.1% on Friday. This fluctuation is attributed to troubling loans at US banks, which have made traders uneasy, alongside ongoing tariff tensions regarding Chinese rare earth elements vital to technology supply chains.
By the close of Wall Street trading, concerns related to credit issues had diminished, and all major indexes finished the day on a positive note.
“Credit anxiety often makes more noise than it actually affects things,” commented Jed Ellerbrook, a portfolio manager at Argent Capital. “Taking a look at the major banks’ performance, the credit situation seems quite healthy overall, with very few weaknesses.”
Moreover, US President Donald Trump described the imposition of retaliatory 100% tariffs on Chinese goods as “unsustainable” and confirmed he would continue discussions with Chinese President Xi Jinping within the next two weeks.
The Australian dollar increased by 0.4% to $0.6511 on Monday.
The Chinese yuan held steady at 7.1261 yuan per dollar in offshore trading.
The euro slightly climbed by 0.1% to $1.1665.
“Regarding total export restrictions and those 100% tariffs on rare earths, there’s an aspect of mutually assured destruction—if you will—that both the US and China seem to recognize,” noted Kyle Rodda, a market analyst at Capital.com.
“Consequently, the market is suggesting a possible easing of the situation,” Rodda added. “However, unless a clear withdrawal is announced, volatility in the markets is likely to persist.”
