Yen Steadies, Dollar Slips as China Pursues Stimulus – Reuters

By Tom Westbrook

SINGAPORE – The Japanese yen found stability on Monday after Japan’s soon-to-be prime minister indicated that monetary policy should continue to be accommodating. Meanwhile, the U.S. dollar softened against commodity-linked currencies as investors anticipated a potential recovery in China’s economy.

The yen surged on Friday following Shigeru Ishiba’s victory in becoming the leader of the ruling Liberal Democratic Party, despite his previous criticism of aggressive monetary policies. The yen dipped about 0.4% to 142.75 per dollar after a notable 1.8% increase on Friday. Ishiba stated in a public interview that, considering the current economic climate, the government’s policy must remain accommodative.

Analysts suggested that Ishiba’s comments were sufficient to temper the yen’s rapid ascent post-election. Additionally, the prospect of a snap election, which Ishiba hinted at over the weekend, may put further downward pressure on the yen in the near term. Ray Attrill, head of foreign exchange strategy at a major bank, commented that an election could effectively remove the Bank of Japan from influencing the market until December, which would be slightly negative for the yen.

In other currency movements, the euro steadied at $1.1172 and the British pound was trading at $1.3381. Market participants are awaiting U.S. jobs data later this week, which is expected to be the next significant indicator influencing U.S. interest rate trajectories.

Attention is also focused on upcoming European inflation figures and Chinese economic data.

The Australian and New Zealand dollars remained near their recent highs, boosted by expectations of interest rate cuts and fiscal support measures in China, leading to optimism about the slowing economy. The Australian dollar rose 0.3% to $0.6920, following a climb to a 20-month high of $0.6937 on Friday, while the New Zealand dollar also gained 0.3% to $0.6360 after reaching its highest level since December.

Last week, a key measure of inflation favored by the U.S. Federal Reserve showed a stable inflation rate of 2.2% for the year ending in August, which pressured U.S. yields and the dollar. Joe Capurso, a strategist at a major Australian bank, projected that the dollar is likely to decline over the next year.

"Inflation appears to be under control, and the downward trend in interest rates is promising for the global economic outlook, enhancing risk-taking and supporting commodity currencies," he remarked.

In other news, a series of stimulus measures from Beijing had invigorated Chinese markets last week, even as interest rates were reduced. This led to a strong performance for Chinese stocks, which achieved their best weekly results in a decade. The yuan surpassed the significant threshold of 7 per dollar in offshore trading on Friday, with its last recorded value at 6.9761 ahead of the onshore opening.