Yen sinks as Takaichi win spurs bets of fiscal easing

The Japanese yen experienced a significant slump, falling 1.5% against the dollar and 1.3% against the euro, following Sanae Takaichi's LDP leadership victory, as her expansionary fiscal agenda dampens expectations for a near-term Bank of Japan rate hike. Concurrently, market participants are pricing in a 94.6% probability of a 25-basis-point Federal Reserve rate cut in October, signaling broad expectations for monetary easing. Other currency movements include the euro's slight decline amid French political changes and the New Zealand dollar weakening ahead of an anticipated RBNZ rate cut.

Analysis

Gold soars to record high over $3,900/oz amid yen slump, US rate cut bets By Gregor Stuart Hunter SINGAPORE (Reuters) -The yen tumbled against the U.S. dollar by the most in five months in early trading on Monday after Sanae Takaichi won the LDP leadership election at the weekend, setting the country on course for more expansionary fiscal policy and complicating the task facing the Bank of Japan. The yen sank 1.5% to 149.73 yen on the dollar, its biggest one-day slide since May 12, wiping out gains it made in the past week as markets resumed trading in Asia. Against the euro, the Japanese currency fell 1.3% to 175.39 yen, nearing its weakest since the creation of the European single currency. A former economic security and internal affairs minister with an expansionary fiscal agenda for the world’s fourth-largest economy, Takaichi’s victory puts her on course to become the country’s first female prime minister. Her expansionist economic policy has reduced bets that the central bank will hike interest rates this month. Takaichi’s win "will likely lead to some weakness in the yen," said Mahjabeen Zaman, head of FX Research at ANZ in Sydney. "There’s a lot of political and fiscal uncertainty in the near term and maybe the BOJ may be cautious, despite the data supporting a little bit more of a hawkish stance," she said on a podcast. With many markets in Asia closed for holidays, the dollar index was last at 98.073, retracing some recent losses. The dollar has weakened steadily against its major peers this year as traders attempt to gauge the economic impact of U.S. President Donald Trump’s policies and attacks on the independence of the Federal Reserve. Market activity signals that easing at the Fed’s October meeting is a near-certainty, with Fed funds futures implying a 94.6% probability of a 25-basis-point rate cut, according to the CME Group’s FedWatch tool. Speculators are also pricing a 70% chance that the government shutdown lasts beyond October 15, according to contracts on the betting website Polymarket. The euro stood at $1.1710, down 0.3% so far in Asia, after French Prime Minister Sebastien Lecornu on Sunday named Roland Lescure, a close ally of President Emmanuel Macron, as finance minister in a new government that political rivals threatened to topple quickly if it failed to break with past Macron policies. The kiwi was 0.1% weaker at $0.5823, reversing a six-day winning streak ahead of the Reserve Bank of New Zealand’s meeting on Wednesday, where it is narrowly expected to cut its key interest rate by 25 basis points to 2.75%. The Australian dollar fetched $0.65909, down 0.1% in early trade. Sterling was changing hands at $1.34325, down 0.3% so far on the day. The offshore yuan traded at 7.14 yuan per dollar, little changed in early trade. Which stock should you buy in your very next trade? AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Year to date, 3 out of 4 global portfolios are beating their benchmark indexes, with 98% in the green. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar? The Japanese yen experienced its most significant single-day depreciation against the U.S. dollar since May, falling 1.5% to 149.73, following Sanae Takaichi's victory in Japan's LDP leadership election. Her platform of expansionary fiscal policy has diminished market expectations for a near-term Bank of Japan rate hike, fostering what analysts describe as 'political and fiscal uncertainty' despite economic data that might otherwise support a more hawkish stance. Concurrently, expectations for monetary easing in the U.S. have solidified, with Fed funds futures pricing a 94.6% probability of a 25-basis-point rate cut at the Federal Reserve's October meeting. This is occurring alongside other risk factors, including a 70% priced-in chance of a prolonged U.S. government shutdown. While the dollar has generally weakened year-to-date, it strengthened against the yen on this news, while other major currencies like the euro, sterling, and New Zealand dollar posted modest declines amid local political and central bank developments. It is critical to note that while the article's headline references gold soaring to a record high, the body of the text provides no data or narrative to substantiate this claim.

Key Decisions for Investors

• Given the pivot to expansionary fiscal policy in Japan, investors should anticipate continued downward pressure on the yen and could consider positioning for further weakness against the dollar.
• With a 25 basis point U.S. Federal Reserve rate cut almost fully priced in, investors should monitor upcoming economic data and Fed communications for any deviation from this expectation, which could trigger significant market volatility.
• The combination of political uncertainty in Japan, a potential U.S. government shutdown, and leadership changes in France introduces considerable event risk, suggesting a cautious approach and the potential need for portfolio hedging.
• Extreme caution is warranted regarding the headline claim of gold reaching record highs, as it is entirely unsubstantiated by the article's content; any investment thesis based on this claim requires independent verification.