Dollar firms against yen, with yen hitting 10-month low

The currency has been dropping on market expectations that Prime Minister Sanae Takaichi’s new administration will deliver a huge spending package backed by low interest rates.

The dollar firmed against the yen on Wednesday and the Japanese currency dropped to a 10-month low, while Finance Minister Satsuki Katayama declared that Japan’s new government was closely monitoring markets “with a high sense of urgency.”

Japanese government ministers including Katayama met Bank of Japan Governor Kazuo Ueda on Wednesday. The yen declined after Katayama’s comments.

The currency has been dropping on market expectations that Prime Minister Sanae Takaichi’s new administration will deliver a huge spending package backed by low interest rates.

From a short-term point of view, the yen continues to underperform. It’s deviating quite significantly from underlying fundamentals, said Shaun Osborne, chief FX strategist, Scotiabank.

It’s certainly on the radar for Japanese officials. We may be moving into a range here where stronger protest from the Japanese government becomes a distinct risk here, he added.

Meanwhile, the dollar also rose against most major peers after the U.S central bank’s October meeting minutes several members thought a December interest-rate cut “could be appropriate” but many viewed it as “likely not appropriate.” Traders were looking to the minutes and the upcoming non-farm payrolls to provide clues about the potential for an interest-rate cut next month.

The deck appears stacked against the doves, said Matt Weller, global head of market research at StoneX.

The yen shed 0.92% to 156.975, reaching its lowest against the dollar since mid-January in the New York afternoon session.

The inauguration last month of Takaichi, who is known as an advocate of expansionary fiscal and monetary policy, has complicated the BOJ’s efforts to gradually push up still-low interest rates.

The Kyodo news agency reported that Japan’s stimulus package could exceed 20 trillion yen ($129 billion) and be funded by an extra budget of nearly 17 trillion yen.