The Japanese yen fell sharply on Monday after the ruling coalition’s failure to secure a parliamentary majority raised concerns about potential impacts on the central bank’s interest rate policies. The yen weakened by as much as 1% to 153.88 per dollar, marking its lowest point in nearly three months. This drop follows Prime Minister Shigeru Ishiba’s ill-fated decision to call a snap election. However, the weaker currency, which supports Japan’s export-driven economy, contributed to a 1.6% rise in the Topix index.
The yen’s decline is largely attributed to Japan’s persistently low interest rates compared to the U.S. and other major economies. This disparity is expected to continue, with the Bank of Japan anticipated to maintain its current policy interest rate at a meeting concluding Thursday.
“Bank of Japan policy is expected to remain accommodative, with even the so-called monetary hawk, Prime Minister Ishiba, recently stating that ‘this is not an environment for raising rates.’ Other political parties are even more opposed to tightening,” noted Richard Kaye, a portfolio manager at Comgest Asset Management.
In other parts of Asia, Chinese stocks faced slight declines following a significant drop in profits for industrial firms in September, highlighting ongoing deflationary pressures that challenge corporate financial stability.
Crude oil prices slumped after Iran declared its oil industry was functioning normally despite Israeli airstrikes targeting military installations across the country. Brent crude and West Texas Intermediate crude both fell by more than 5% in early trading before recovering some of their losses. Meanwhile, gold prices also edged lower.
Markets are bracing for a wave of economic data this week, including readings on Chinese economic activity, growth figures from the Eurozone and the U.S., as well as a key payrolls report. These updates will help investors recalibrate their portfolios as they approach year-end. Additionally, traders are adjusting their expectations for the upcoming U.S. election, especially as Asian and emerging market assets have continued their decline amid speculation regarding a potential return of Donald Trump to the White House.
“As the elections draw near and expectations around Trump-related trades materialize, the U.S. dollar may maintain its strength while U.S. interest rates remain high, creating a challenging environment for emerging market assets,” stated Barclays Plc strategists led by Themistoklis Fiotakis in a note to clients. They added that while the situation could worsen with a Trump victory, “some degree of election premium has already been priced into currency markets in recent weeks.”
Related topics:
