Market News
Yen dented by Japan PM's resignation announcement; dollar wobbles - REUTERS
By Rae Wee and Amanda Cooper
Summary
- Yen falls on heightened political uncertainty in Japan
- Ishiba's resignation clouds BOJ outlook
- French politics also in focus
- Investors pricing in slight chance of outsized September Fed cut
SINGAPORE/LONDON, Sept 8 (Reuters) - The yen fell on Monday after Japanese Prime Minister Shigeru Ishiba said he would resign, while the dollar remained on shaky ground after Friday's weak U.S. jobs report, which cemented expectations of a Federal Reserve rate cut this month.
The focus for markets will also be on French Prime Minister Francois Bayrou's confidence vote, which he is expected to lose. The announcement of the vote, which Bayrou himself called, has plunged the euro zone's second-largest economy deeper into political crisis.
Japan's Ishiba on Sunday said he would step down, ushering in a potentially lengthy period of policy uncertainty at a shaky moment for the world's fourth-largest economy, the most heavily indebted industrialised nation.
The yen weakened sharply in Asia trade, leaving the dollar up by as much as 0.78% at one point before steadying to trade with a 0.1% gain on the day at 147.625 .
The Japanese currency similarly slid to its lowest in more than a year against the euro and sterling at 173.13 and 199.53, respectively.
Investors are focusing on the chance of Ishiba being replaced by an advocate of looser fiscal and monetary policy, such as Liberal Democratic Party veteran Sanae Takaichi, who has criticised the Bank of Japan's interest rate hikes.
"The probability of an additional rate hike in September was never seen as high to begin with, and September is likely to be a wait-and-see," Hirofumi Suzuki, chief currency strategist at SMBC, said of the BOJ's next move.
"From October onward, however, outcomes will in part depend on the next prime minister, so the situation should remain live."
On Monday, former Foreign Minister Toshimitsu Motegi became the first ruling party lawmaker to throw his hat into the ring to succeed Ishiba, who will stay on until his successor is chosen.
Japanese stocks surged while government bonds (JGBs) were steady, though yields on super-long JGBs hovered near record highs.
"With the LDP lacking a clear majority, investors will be cautious until a successor is confirmed, keeping volatility elevated across yen, bonds and equities," said Charu Chanana, chief investment strategist at Saxo.
"Near term, that argues for a softer yen, higher JGB term-premium, and two-way equities until the successor's profile is clear." The yen hardly reacted to data on Monday showing Japan's economy expanded much faster than initially estimated in the second quarter.
SEPTEMBER FED CUT BAKED IN
The dollar struggled to recoup its heavy losses after falling sharply on Friday on data that showed further cracks in the U.S. labour market.
The nonfarm payrolls report showed U.S. job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%.
Investors ramped up bets of an outsized 50-basis-point rate cut from the Fed later this month following the release and are now pricing in a 10% chance of such a move, as compared to none a week ago, according to the CME FedWatch tool.
Sterling edged up 0.1% to $1.352, having risen more than 0.5% on Friday, while the euro steadied at $1.1727, after hitting a more than one-month high on Friday.
The dollar index edged down 0.2% to 97.7, having tumbled more than 0.5% on Friday.
"(The payrolls report) has resulted in the dollar index falling back below support at the 98.000-level although the negative impact on the U.S. dollar is more modest than implied by the drop in short-term U.S. yields," MUFG currency strategist Lee Hardman said in a note.
"The weak nonfarm payrolls report for August has reinforced expectations that the Fed will resume cutting rates this month, and has even encouraged expectations that they could begin with a larger 50-bp rate cut similar to last September."
U.S. Treasury Secretary Scott Bessent on Friday called for renewed scrutiny of the Fed, including its power to set interest rates, as the Trump administration intensifies its efforts to exert control over the central bank.
President Donald Trump is considering three finalists for Federal Reserve chair to replace Jerome Powell, whom he has criticised all year for not cutting rates as he has demanded.
Elsewhere, the Australian and New Zealand dollars each rose 0.5% to $0.6585 and $0.5926, respectively.
Additional reporting by Rae Wee in Singapore; Editing by Jamie Freed, Jacqueline Wong and Hugh Lawson
