Dollar climbs to three-month high against yen on Abe election win

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The dollar touched a three-month high against the yen on Monday, with an emphatic election victory for Japan’s ruling party keeping yen-weakening stimulus measures at the heart of government policy.

Japan's Prime Minister Shinzo Abe’s ruling party scored a big win in Sunday’s election with his coalition keeping its two-thirds “super majority” in the lower house, local media said.

Abe’s victory eased fears that the economic steps implemented under his leadership, such as the Bank of Japan’s super easy monetary policy would be disrupted and halt the yen’s depreciation against the dollar.

Japan's Prime Minister Shinzo Abe’s ruling party scored a big win in Sunday’s election /Reuters Photo

“An LDP win did not come as a surprise, but it still helped clear uncertainty that had been preventing participants from buying the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“Overcoming deflation with the BOJ easing is at the crux of the Abe administration’s policies and this will now be allowed to continue indefinitely. It’s relief over the BOJ policies, rather than hopes for fresh fiscal stimulus, that is weakening the yen.”

The US currency was up 0.25 percent losing a bit of momentum after earlier touching 114.10, its highest since July 11.

Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo, said dollar/yen-supportive election elation was likely to peter out relatively quickly, with market focus returning to US factors like tax reform efforts.

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“The election outcome means the Abe administration will retain the status quo, making no changes, and continue with its policies,” Murata said. “It will find little need for fresh steps when the GDP has registered six quarters of growth, unemployment is under 3 percent and the Nikkei is above 21,000.”

The dollar was supported as US yields rose, with the two-year yield hitting a nine-year high, as the progress in tax reforms boosted expectations of increased US Government borrowing and a possible pickup in inflation.

Another focal point for the dollar was who US President Donald Trump would appoint as the next Federal Reserve chief. Investors are hoping whoever is nominated pursues the same monetary policy that has supported rising stock prices for the past nine years.

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Source(s): AP ,Reuters