Most Asian currencies traded steady on Monday, as investors strengthened bets on a Federal Reserve rate cut next week. However, the Japanese yen fell sharply after Prime Minister Shigeru Ishiba’s resignation, fueling political uncertainty in the world’s fourth-largest economy.
By 02:46 GMT, the U.S. Dollar Index—which tracks the greenback against a basket of major currencies—was up 0.1% in Asian trading, after suffering heavy losses on Friday.
Yen Slumps on Political Uncertainty
The USD/JPY pair surged as much as 0.8% to 148.57 before easing to 148.15 yen, still 0.5% higher at the time of writing.
The yen’s decline followed Ishiba’s resignation on Sunday after election losses and rising party dissent. His exit raised new concerns over Japan’s fiscal and monetary policy outlook.
Analysts at ING warned that growing concerns over Japan’s fiscal position could trigger long-end bond selling and yield curve steepening.
Attention now shifts to Ishiba’s successor. Sanae Takaichi, a senior Liberal Democratic Party (LDP) figure, is seen as the frontrunner. Takaichi supports looser fiscal and monetary policies, which may lift equities but add pressure on the yen and bonds. Another possible contender is Shinjiro Koizumi, son of former Prime Minister Junichiro Koizumi, who favors structural reforms and a more neutral stance on monetary policy.
Meanwhile, data confirmed that Japan’s economy grew faster than expected in Q2, supported by strong consumer spending and higher inventories.
Fed Cut Bets and Rupee Weakness
Across Asia, traders remain focused on the Federal Reserve’s next policy meeting. A weak U.S. jobs report last week showed slowing job growth and unemployment rising to a nearly four-year high. This has increased expectations of multiple Fed rate cuts.
ING analysts now expect 25-basis-point cuts in September, October, and December, followed by an additional 50bp reduction in early 2026. They warned that U.S. tariffs and political tensions in Japan could still keep regional market moves muted.
In currency markets, the Chinese yuan (onshore USD/CNY and offshore USD/CNH) edged 0.1% higher. The South Korean won gained 0.2%, while the Singapore dollar rose 0.1%. The Australian dollar traded flat.
The Indian rupee was little changed after touching a fresh record low of 88.36 per dollar, pressured by steep U.S. tariffs.
