The Japanese yen slipped to a two-month low against the U.S. dollar on Tuesday, as attention in Japan turned to who will join the new administration under fiscal dove Sanae Takaichi following her victory in the Liberal Democratic Party (LDP) leadership race.
The yen also hit an all-time low against the euro, prompting Finance Minister Katsunobu Kato to say that authorities are closely monitoring currency market volatility. Takaichi, widely expected to become Japan’s next prime minister, appointed former premier Taro Aso as vice president of the ruling party and former finance minister Shunichi Suzuki as LDP secretary-general.
Yen drops as investors watch new policy direction
The yen weakened 0.1% to 150.46 per dollar, touching 150.62 earlier, its lowest since August 1. Against the euro, the yen fell to 176.35, setting a new record low before slightly rebounding.
Traders are now watching to see how Takaichi’s cabinet will shape its fiscal and monetary agenda. Analysts expect the government may take steps to verbally stabilize the yen if volatility persists.
“The 150 per dollar mark is a very important level — both psychologically and economically,” said Bart Wakabayashi of State Street in Tokyo. “Markets are waiting to see whether Takaichi’s expected stimulus-driven policies actually take effect.”
Market observers also note that Taro Aso’s fiscal conservatism could limit Takaichi’s ability to pursue aggressive spending plans. “His influence was crucial to her victory, and that could moderate her policies,” said Carl Ang, fixed income analyst at MFS Investment Management.
Political changes ripple through global markets
While Japan’s currency slipped, the euro also weakened following the resignation of France’s Prime Minister Sébastien Lecornu and remarks from European Central Bank (ECB) officials hinting at possible future rate cuts.
The dollar index (DXY) rose 0.1% to 98.23, supported by demand for safe assets. The euro fell 0.1% to $1.1694, while sterling edged down 0.1% to $1.3463.
In the United States, a prolonged government shutdown continued to weigh on sentiment. The White House clarified that federal employees had not yet been laid off, but warned that job losses could follow if the shutdown drags on.
Key economic data releases, including the September jobs report, remain delayed until the government reopens.
Market focus turns to Federal Reserve and rate cuts
Investors are now awaiting commentary from several Federal Reserve policymakers this week for signals on future rate cuts. Fed Vice Chair Michelle Bowman and Governor Stephen Miran are set to speak Tuesday, followed by the release of the FOMC September meeting minutes on Wednesday.
Markets are pricing in two additional 25-basis-point rate cuts in October and December, with probabilities of 92.5% and 81.5%, respectively, according to CME’s FedWatch Tool.
Elsewhere, the Australian dollar dipped 0.1% to $0.6608, while New Zealand’s kiwi fell 0.3% to $0.5822. In crypto markets, Bitcoin slid 0.7% to $124,334.94, while Ethereum rose 0.5% to $4,713.78.
