By Rocky Swift
TOKYO (Reuters) -The yen weakened to a two-month low against the dollar on Tuesday as attention in Japan turned to who may join the cabinet of fiscal dove Sanae Takaichi after her party leadership victory.
The Japanese currency set a new all-time low against the euro as domestic bond yields jumped ahead of a debt auction that will test demand under what is expected to be a more expansionist administration led by Takaichi as prime minister.
Takaichi was considered to be the most dovish among five candidates in Japan’s Liberal Democratic Party race on Saturday to replace hawkish Prime Minister Shigeru Ishiba.
The yield on the 30-year Japanese government bonds rose to an all-time high ahead of the debt auction.
The euro remained on a fragile footing following the resignation of France’s prime minister and European Central Bank officials said a rate cut may be necessary. Traders will be on watch for speeches from Federal Reserve policymakers later in the day as a U.S. government shutdown squelches other data signals.
As markets await more clarity on how Takaichi will structure her government, Japanese officials may try to talk the yen down now that it has breached the 150 level against the dollar, said Bart Wakabayashi, the Tokyo Branch Manager of State Street.
“It’s a very important level, psychologically and economically,” Wakabayashi said. “From an economic and corporate competitive perspective, where is the Bank of Japan and the Ministry of Finance comfortable? I do believe it’s at a lower level, and there should start to be comments coming out.”
The yen slid 0.2% to 150.59 on the dollar and earlier touched 150.62, the weakest level since August 1. Japan’s currency also skidded to 176.35 per euro, a fresh all-time low.
The euro slid against the dollar and the pound in the previous session after France’s new Prime Minister Sebastien Lecornu and his government resigned on Monday.
The ECB may need to reduce borrowing costs slightly if the risk of inflation going too low increases, but interest rates are appropriate now, the central bank’s top brass said on Monday.
The dollar index, which measures the greenback against a basket of currencies, added 0.05% to 98.17. The euro was little changed at $1.1705.
The White House on Monday backed off President Donald Trump’s assertion that government employees were already being laid off due to the shutdown, but warned job losses could result as the standoff looked set to stretch into a seventh day.
The shutdown delayed last Friday’s closely watched monthly jobs report for September and is set to postpone other key releases until the government reopens.
Market attention is now focused on the Fed itself for signs of the timing and extent of more easing. Fed Vice Chair for Supervision Michelle Bowman and newly installed fellow Governor Stephen Miran are due to speak later on Tuesday, while Wednesday brings minutes from the Federal Open Market Committee’s meeting for September.
The Fed is widely expected to cut rates by 25 basis points at its October 28-29 meeting, following data that showed a weakening labor market.
(Reporting by Rocky SwiftEditing by Shri Navaratnam)
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