Most Asian currencies traded flat on Tuesday as the ongoing U.S. government shutdown continued to hurt market confidence. Meanwhile, the Japanese yen fell to a two-month low after fiscal dove Sanae Takaichi won the leadership of Japan’s ruling Liberal Democratic Party.
The U.S. Dollar Index (DXY), which tracks the greenback against a basket of major currencies, inched up by 0.1% after small gains on Monday. Dollar Index Futures also held steady around 04:30 GMT.
Yen drops after Takaichi’s LDP victory
The yen weakened further against the dollar, with the USD/JPY pair touching a two-month high of 150.62. The currency pair surged nearly 2% on Monday, following Takaichi’s weekend victory, which positioned her as Japan’s likely next prime minister.
Known for her pro-spending stance, Takaichi has often criticized the Bank of Japan’s past rate hikes, calling them “stupid.” She supports looser monetary policy, signaling that Japan may not tighten rates anytime soon.
After her win, traders quickly scaled back expectations for any further BOJ rate increases.
“Her election came as a surprise, and the yen’s 2% drop versus the dollar shows how markets reacted,” analysts at ING wrote in a note.
Still, ING analysts warned that USD/JPY has limited room to rise. A weaker yen could worsen living costs in Japan and strain U.S.–Japan relations, making any move above 150 likely short-lived.
Asian FX stays muted as traders await Fed minutes
Across the rest of Asia, most currencies stayed within narrow ranges. Investors remained cautious as the U.S. government shutdown entered its second week, delaying key economic data and adding uncertainty to the Federal Reserve’s next move.
The Singapore dollar (USD/SGD) slipped 0.1%, while the South Korean won (USD/KRW) stayed nearly unchanged. The offshore Chinese yuan (USD/CNH) rose 0.1%, though mainland markets were closed for public holidays.
The Australian dollar (AUD/USD) traded flat, and the Indian rupee (USD/INR) gained 0.1%, hovering near last month’s record highs.
“This is shaping up to be another unusual week for forex markets,” ING analysts said. “With limited economic data, traders will focus heavily on macro events.”
The most important release this week will be the Federal Reserve’s September meeting minutes, due Wednesday, which could shape expectations for future rate policy.
