Yen Falls as Takaichi Becomes Japan’s First Female Prime Minister
The Japanese yen weakened on Tuesday after Sanae Takaichi, a hardline conservative, was elected as Japan’s first female prime minister. Markets reacted cautiously, with investors betting that her leadership could bring looser fiscal policies and a murky interest rate outlook.
Takaichi Wins Parliamentary Vote
Takaichi, leader of the Liberal Democratic Party (LDP), secured the lower house vote on Tuesday, paving the way for her official inauguration later in the day.
The outcome had been largely anticipated after Takaichi gained support from the right-wing Japan Innovation Party (Ishin). However, the yen still slipped 0.4%, trading at 151.38 per U.S. dollar following the announcement.
Fiscal Policy and Yen Outlook
“While fiscal stimulus is expected, it is unlikely to be bold given the difficulties of policy management,” said Hirofumi Suzuki, chief FX strategist at SMBC.
He added that a sharp yen depreciation is unlikely, but gentle downward pressure could continue in the near term.
Local media also reported that Takaichi plans to appoint Satsuki Katayama, a former regional revitalization minister, as finance minister. Katayama, who has previously expressed support for a stronger yen, could influence market sentiment and moderate future declines.
Even so, Takaichi’s backing for fiscal expansion and looser monetary policy is keeping investors cautious. Analysts said her stance could complicate the Bank of Japan’s (BOJ) plans to raise interest rates.
“Politically, there may be incentives to delay rate hikes until fiscal easing gains traction,” said Fred Neumann, chief Asia economist at HSBC. “The BOJ is caught between a rock and a hard place.”
Yen Struggles Against Global Currencies
The yen also fell against major peers, with the euro rising 0.33% to 176.06 yen and the British pound gaining 0.28% to 202.55 yen.
Across the broader forex market, currencies traded within narrow ranges, while the U.S. dollar regained early losses as it drew strength from the weaker yen.
Market Mood Ahead of the Fed Meeting
The British pound slipped 0.16% to $1.3383, while the euro edged down 0.1% to $1.1630 despite easing political uncertainty in France. The U.S. dollar index rose 0.16% to 98.77, and the Australian dollar fell 0.21% to $0.6499.
Investor sentiment improved after U.S. President Donald Trump said he expects to reach a trade deal with Chinese President Xi Jinping, while White House adviser Kevin Hassett signaled that the U.S. government shutdown could soon end. Concerns over U.S. bank credit risks also eased slightly.
However, traders remained cautious ahead of next week’s Federal Reserve policy meeting, which could determine the timing of the next interest rate cut.
“Next week will be far more important for market direction,” said Ray Attrill, head of FX research at National Australia Bank. “Depending on the Fed’s tone, confidence in a December cut could be tested.”
Asia-Pacific Currencies Mixed
Elsewhere, the New Zealand dollar dropped 0.3% to $0.5727, while the onshore yuan strengthened slightly to 7.1183 per dollar after the People’s Bank of China set the midpoint at its firmest level in a year.
