Most Asian currencies held steady on Monday as investors firmed up expectations of a Federal Reserve rate cut next week, while the Japanese yen slid after Prime Minister Shigeru Ishiba’s resignation fueled political uncertainty in the world’s fourth-largest economy.
As of 02:46 GMT, the US Dollar Index, which measures the greenback against a basket of major currencies, traded 0.1% higher in Asia hours, after sharp losses on Friday.
Yen tumbles after Japan PM Ishiba resigns The Japanese yen’s USD/JPY pair jumped as much as 0.8% to 148.57 yen on Monday, and traded 0.5% higher at 148.15 yen at the time of writing.
The slide came after Japanese Prime Minister Shigeru Ishiba resigned, deepening political uncertainty and unsettling financial markets already under strain.
Ishiba stepped down on Sunday following heavy election losses and growing internal party dissent, raising questions about Japan’s fiscal and monetary policy outlook.
"Concerns over Japan’s fiscal outlook in the market are growing, thus a long-end JGB sell-off and curve steepening are likely to follow," ING analysts said in a note.
Attention has turned to Ishiba’s successor, with ruling Liberal Democratic Party (LDP) heavyweight Sanae Takaichi seen as a leading contender. Takaichi is known for supporting looser fiscal and monetary policies, which could buoy equities but add further pressure on the yen and bond markets.
Another contender is Shinjiro Koizumi, the son of former Prime Minister Junichiro Koizumi and a rising figure within the LDP.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. "One supports fiscal expansion and a more accommodative monetary policy, while the other advocates for structural reforms and maintains a neutral stance on current monetary normalisation," analysts added.
In other news, data showed that Japan’s economy grew faster than first estimated in the second quarter, boosted by stronger consumption and inventories.
Fed cut bets firm; Indian rupee hits fresh record low Elsewhere, investors were cautiously optimistic about a potential interest rate reduction by the U.S. central bank at its next week’s meeting.
Last week, data showed that U.S. job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high.
“Consumers are already worried about squeezed spending power from tariffs and are now increasingly concerned about job security,” ING analysts said in a separate note.
“That justifies the Federal Reserve taking early action even if some members are not fully comfortable with the inflation story. We look for 25bp rate cuts in September, October and December with a further 50bp of cuts in early 2026,” they added.
Still, regional moves were subdued over caution on U.S. tariffs and political unrest in Japan.
In China, both the yuan’s onshore USD/CNY and offshore pairs USD/CNH ticked 0.1% higher.
The South Korean won’s USD/KRW pair gained 0.2%, while the Singapore dollar’s USD/SGD inched up 0.1%.
The Australian dollar’s AUD/USD pair traded flat.
The Indian rupee’s USD/INR was largely unchanged after hitting a fresh record high of 88.36 rupees earlier in the session, pressured by steep U.S. trade tariffs.
