By Rae Wee
SINGAPORE (Reuters) -The yen fell broadly on Monday following news that Japanese Prime Minister Shigeru Ishiba had resigned, while the dollar was nursing losses after tumbling on a weak U.S. jobs report that cemented expectations for a Federal Reserve rate cut this month.
Ishiba on Sunday announced his resignation, ushering in a potentially lengthy period of policy uncertainty at a shaky moment for the world’s fourth-largest economy.
The yen slumped in response in early Asia trade on Monday, falling 0.7% against the dollar to 148.43.
The Japanese currency similarly slid more than 0.5% against the euro and sterling to 173.77 and 200.15, 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 (LDP) 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 in Tokyo, 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.”
Concerns over political uncertainty prompted a selloff in the yen and Japanese government bonds (JGBs) last week, sending the yield on the 30-year bond to a record high.
“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 profile is clear.”
SEPTEMBER FED CUT BAKED IN
In other currencies, the dollar was recouping some of its heavy losses, helped in part by the yen’s weakness, after falling sharply on Friday on data that showed further cracks in the U.S. labour market.
The closely watched 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 in the wake of the release and are now pricing in an 8% chance of such a move, as compared to none a week ago, according to the CME FedWatch tool.
Against the dollar, sterling fell 0.14% to $1.3488, having risen more than 0.5% on Friday. The euro was similarly down 0.13% at $1.1705, after hitting a more than one-month high on Friday.
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