The rising yen stabilized on Monday as Japan’s new prime minister signaled monetary policy was expected to remain accommodative, while the dollar slipped against commodity currencies, supported by investor expectations for a recovery in the Chinese economy.
The yen jumped Friday as Shigeru Ishiba, a former defense minister and former critic of aggressive politics, won the leadership of the Liberal Democratic Party, which controls parliament and will give him the vote.
The yen slipped about 0.4% to 142.75 per dollar, after jumping 1.8% on Friday. Ishiba told public broadcaster NHK that, from the government’s perspective, policy must remain accommodative given current economic conditions.
Analysts said the statement was enough to interrupt the sharp rise in the yen following his victory and that the likelihood of a snap election in the coming months – something Mr Ishiba hinted at on Sunday – could weigh on the yen, at least in the short term.
“An election essentially takes the Bank of Japan out of the equation until December… which is slightly negative for the yen,” said National Australia Bank head of foreign exchange strategy Ray Attrill.
Elsewhere, the euro held steady at $1.1172 and the pound sterling traded at $1.3381, with markets awaiting US jobs data on Friday as the next big point that could guide the pace of cuts American interest rates.
European inflation data on Tuesday and Chinese data on Monday are also eagerly awaited.
The Australian and New Zealand dollars traded near the 2024 highs they reached on Friday as rate cuts and expectations of fiscal support in China raised hopes for an improving economy slowing down.
The Australian dollar rose 0.3% to $0.6920, after hitting a 20-month high of $0.6937 on Friday. The New Zealand dollar was up 0.3% at $0.6360 after hitting its highest level since December on Friday.
Last week, the US Federal Reserve’s preferred measure of inflation showed inflation at 2.2% for the 12 months through August, pushing down US yields and the dollar.
“The trend for next year is for the dollar to fall,” said Joe Capurso, a strategist at the Commonwealth Bank of Australia.
“Inflation is under control. Interest rates are falling, which is good for the global economic outlook, good for risk-taking and good for commodity currencies like the Australian.”
Beijing’s stimulus package led to a rise in the Chinese yuan last week, even as interest rates were cut, as investors flocked to Chinese stocks which had their best week in a decade. The yuan crossed the psychological $7 mark in offshore trading on Friday and stood at 6.9761 before onshore markets opened.
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