The yen exchange rate fluctuated within a range of 153 yen to the dollar

On October 9th, the yen fluctuated within a range of 153 yen to the dollar in the New York foreign exchange market. The yen’s depreciation against the dollar was significantly greater than that of seven major currencies. Market sentiment suggests that the inauguration of Sanae Takaichi as the new president of the Liberal Democratic Party of Japan will favor a monetary easing policy, leading to continued selling of the yen.

On the 9th, the yen exchange rate reached around 153.22 yen against the dollar in the Tokyo foreign exchange market, reaching a new high in approximately eight months. The current yen exchange rate has depreciated by approximately 4% compared to October 3rd, before the LDP presidential election, making the yen’s depreciation particularly pronounced against the dollar among major currencies.

The yen’s decline was even greater than that of the euro (down 1.6%) in Europe, amidst significant political turmoil, such as the resignation of the French prime minister, and the New Zealand dollar (down 1.5%), which saw increased selling following the central bank’s significant interest rate cuts on the 8th. Swiss financial giant UBS predicts that “this week will be the weakest for the yen since September 2024,” while also noting, “It cannot be denied that further unwinding of speculative long yen positions has temporarily led to an overshoot towards 155 yen.”

Takaichi Takaichi stated on a Japanese private television program on the evening of the 9th, Japan time, that “there is no intention to induce excessive yen depreciation.” She also referred to the joint statement signed in 2013 by the Japanese government and the Bank of Japan (central bank) to quickly escape deflation, saying, “We do not believe an immediate revision is necessary.”

Despite Takaichi’s comments about adjusting her monetary easing stance, market participants are also testing the bottom of the yen exchange rate. Michael Boutros, senior technical strategist at the foreign exchange brokerage Forex.com, emphasized on the 9th that the current yen exchange rate presents a good opportunity to reduce some of their holdings.

Chris Turner, global head of financial markets research at Dutch financial giant ING, believes that “if the Bank of Japan delays its interest rate hike until after next year, depreciation pressure on the yen will intensify.”

The outlook for Japan’s domestic political landscape remains uncertain, particularly regarding the framework for a coalition government. Komeito leader Tetsuo Saito held talks with Takaichi on the 10th, and a final decision on whether to agree to a coalition government is expected soon. The selection of the new finance minister will also factor into market trading decisions. Once these circumstances are clarified, selling pressure on the yen could intensify.

In a report released on the 8th, Bank of America noted that, in addition to Takaichi’s impact, “the renewed acceleration of individual investors’ foreign exchange investment and continued corporate overseas direct investment also suggest increasing selling pressure on the yen.” The report also suggested that “if the exchange rate approaches or breaks through 155 yen, intervention is possible.”