Feb. 9, London (Japan’s Currency Recovers From Losses)— Japan’s currency, the yen, bounced back on Monday after a big political win at home, surprising many traders after nearly a week of steady losses. The move came after Japan’s new prime minister, Sanae Takaichi, secured a strong election victory, giving markets fresh hope that government spending could help boost the economy.
At the start of trading, the yen briefly weakened following Takaichi’s win on Sunday, touching its lowest level in about two weeks. But as the day went on, the mood shifted. Investors began buying the yen again, pushing it higher against the U.S. dollar. By late Monday, the dollar was down about 0.5% against the yen, trading around 156.36.
The yen also recovered some ground against other major currencies. Earlier in the day, it had hit a record low against the Swiss franc and hovered near its weakest level since the euro was created. That pullback showed how sensitive markets are to political news and expectations about future government policies.
Still, experts warned that the yen’s problems may not be over. Sim Moh Siong, a currency strategist at OCBC in Singapore, said the yen could continue to struggle.
“The initial weakness didn’t last, but the outlook for the yen is still challenging,” he said. “There is also concern that Japan’s government could step in to control currency moves, which may limit how much the yen can strengthen.”
Japan’s top currency official, Atsushi Mimura, added to the caution. He said the government was “closely watching currency movements with a high sense of urgency” after Takaichi’s coalition achieved a historic election win. His comments signaled that officials are paying close attention to the yen’s swings and may act if moves become too sharp.
Market watchers say Takaichi’s victory gives her strong support to push pro-growth policies, such as higher government spending. While that could help stocks and economic activity, it also raises worries about Japan’s already heavy debt load.
Kit Juckes, head of foreign exchange strategy at Societe Generale, said markets are weighing both sides. “This win gives Takaichi a clear mandate to focus on growth,” he said. “But investors are also concerned about rising debt, which has been troubling markets for some time.”
So far, long-term Japanese government bonds have not reacted badly to the election result. Juckes noted that as long as bond markets stay calm, the yen may avoid sharp declines in the short term.
Even so, analysts expect more ups and downs ahead. David Chao, global market strategist for Asia-Pacific at Invesco, said markets are still trying to understand what the election result means for Japan’s currency.
“With a stronger mandate, fiscal policy is likely to become more expansionary,” Chao said. He pointed to possible measures like cutting taxes on food. While that could help households and raise inflation, it might also speed up the timeline for interest rate hikes by the Bank of Japan.
Outside of Japan the United States dollar is not doing well against most major currencies. The dollar index, which looks at how the United States dollar’s doing against six important currencies went down a little bit by 0.4 percent to 97.23. People who invest money are getting ready for a busy week because there is a lot of information coming out about the United States economy like how well stores are selling things what is happening with inflation and a report, about jobs that was supposed to come out already but is now coming out on Wednesday.
People who trade are trying to figure out when the U.S. Federal Reserve will lower interest rates. The U.S. Federal Reserve is very important to these people. Now the futures markets are saying that there is only a little chance that the U.S. Federal Reserve will cut interest rates at their meeting in March. The meeting, in March is what everyone is waiting for to see what the U.S. Federal Reserve will do with interest rates.
Elsewhere, the euro rose about 0.5% against the dollar, while the British pound edged higher as well, though it remained weaker against the euro amid political turmoil in the U.K.
In digital markets, cryptocurrencies fell. Bitcoin dropped about 2.3%, while ether slid roughly 3%, showing that riskier assets are also feeling pressure.
With politics, currencies, and global markets all moving at once, investors are bracing for more surprises in the days ahead.
Do you think Japan’s new leadership will help stabilize the yen, or is more market turbulence still ahead? Share your thoughts in the comments.
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