By Rocky Swift TOKYO (Reuters) -The yen weakened to a two-month low against the dollar on Tuesday as attention in Japan turned to who may join the administration of fiscal dove Sanae Takaichi after her party leadership victory. With the yen also trading at an all-time low against the euro, Japan’s finance minister said authorities […]
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Yen slides to 2-month low on Japan election angst
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By Rocky Swift
TOKYO (Reuters) -The yen weakened to a two-month low against the dollar on Tuesday as attention in Japan turned to who may join the administration of fiscal dove Sanae Takaichi after her party leadership victory.
With the yen also trading at an all-time low against the euro, Japan’s finance minister said authorities were watching out for excessive moves in currency markets. Takaichi, expected to become Japan’s next prime minister, chose former premier Taro Aso as vice president of her ruling party.
The euro remained on a fragile footing following the resignation of France’s prime minister and statements by European Central Bank officials that a rate cut may be necessary. Traders will be on watch for speeches from Federal Reserve policymakers later in the day as a U.S. government shutdown squelches other data signals.
As markets await more clarity on how Takaichi will structure her government, Japanese officials may try to talk the yen down from recent extremes, said Bart Wakabayashi, the Tokyo branch manager of State Street.
“We’ll see if the expected policies that she is tied to will come through,” Wakabayashi said of Takaichi. The 150 yen per dollar mark is “a very important level, psychologically and economically.”
“From an economic and corporate competitive perspective, where is the Bank of Japan and the Ministry of Finance comfortable? I do believe it’s at a lower level,” he added.
The yen slid 0.1% to 150.46 per dollar and earlier touched 150.62, the weakest level since August 1. Japan’s currency also skidded to 176.35 per euro, a fresh all-time low, before rebounding slightly.
Takaichi was considered to be the most dovish among five candidates in Japan’s Liberal Democratic Party race on Saturday to replace hawkish Prime Minister Shigeru Ishiba. Along with her appointment of Aso to her inner circle on Tuesday, she chose former finance minister Shunichi Suzuki as secretary-general of the LDP.
There remains considerable uncertainty if Takaichi, as prime minister, will be able to fully implement her agenda of looser fiscal and monetary policy, said Carl Ang, a fixed income analyst at MFS Investment Management.
“One consideration is fiscal conservative Taro Aso and his faction, which were instrumental to Takaichi’s success at the LDP leadership election,” Ang added.
Reacting to the yen’s swoon, Japanese Finance Minister Katsunobu Kato on Tuesday reiterated that currencies should move in a stable manner reflecting fundamentals.
A closely watched auction of 30-year Japanese government bonds went smoothly on the day, after yields on the debt jumped to a record high.
The euro slid against the dollar and the pound in the previous session after France’s new Prime Minister Sebastien Lecornu and his government resigned on Monday.
The ECB may need to reduce borrowing costs slightly if the risk of inflation going too low increases, but interest rates are appropriate now, the central bank’s top brass said on Monday.
The dollar index, which measures the greenback against a basket of currencies, rose 0.1% to 98.23. The euro slid 0.1% at $1.1694, after a 0.3% drop on Monday. Sterling weakened 0.1% to $1.3463.
The White House on Monday backed off President Donald Trump’s assertion that government employees were already being laid off due to the shutdown, but warned job losses could result as the standoff looked set to stretch into a seventh day.
The shutdown delayed last Friday’s closely watched monthly jobs report for September and is set to postpone other key releases until the government reopens.
Market attention is now focused on the Fed itself for signs of the timing and extent of more easing. Fed Vice Chair for Supervision Michelle Bowman and newly installed fellow Governor Stephen Miran are due to speak later on Tuesday, while Wednesday brings minutes from the Federal Open Market Committee’s meeting for September.
Markets are pricing in additional 25 basis-point rate cuts in both October and December, with probabilities of 92.5% and 81.5%, respectively, according to the CME FedWatch tool.
The Australian dollar weakened 0.1% to $0.6608, while New Zealand’s kiwi fell 0.3% to $0.5822. In cryptocurrencies, bitcoin fell 0.7% to $124,334.94, and ether rose 0.5% to $4,713.78.
(Reporting by Rocky SwiftEditing by Shri Navaratnam and Sam Holmes)