Written by Tom Westbrook
SINGAPORE (Reuters) – The yen stabilized on Monday as Japan’s new prime minister signaled that monetary policy should remain accommodative, while commodity currencies rose to their highest levels this year on investor hopes for a turnaround in the Chinese economy.
The Japanese yen jumped on Friday when Shigeru Ishiba, a former defense minister and former critic of soft policy, won the leadership of the ruling Liberal Democratic Party, which controls parliament and will vote in favor.
It rose to a one-week high of 141.75 in the Asian session, but further moves were capped when Ishiba told public broadcaster NHK that from the government’s point of view, policy should remain accommodative as a direction, given the economic conditions.
Analysts said that was enough to halt the sharp rise in the yen’s value after his victory and that the possibility of early elections in the coming months – something Ishiba hinted at on Sunday – could weigh on the yen at least in the short term.
“The election basically takes the Bank of Japan out of the equation until December… a negative marginal yen,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC).
Elsewhere, the euro settled at $1.1167 and the pound traded at $1.3391 as markets eyed US jobs data on Friday as the next key data point that could guide the pace of US interest rate cuts.
European inflation data on Tuesday is also eagerly awaited.
The Australian and New Zealand dollars hit their highest levels in 2024, as interest rate cuts and expectations of fiscal support in China raised hopes for an improvement in the slowing economy and pushed gains in Chinese markets and everything exposed to growth in China.
The Australian dollar rose 0.5 percent to the highest level in 20 months at 0.6941 US dollars, and the New Zealand dollar rose 0.5 percent to the highest level in 14 and a half months at 0.6375 US dollars.
Last week, the US Federal Reserve’s preferred measure of inflation showed that inflation was a very benign 2.2% in the 12 months through August, dragging down US yields and the dollar.
“The trend over the next year or so is a lower dollar,” said Joe Capurso, a strategist at the Commonwealth Bank of Australia (OTC).
“Inflation is under control. Interest rates are coming down and that is good for the global economic outlook, good for risk, and good for commodity currencies like .
Beijing’s raft of stimulus measures led to a rally last week, even as interest rates were cut, with investors piling into Chinese stocks that had their best week in a decade. The yuan broke the psychological level of $7 in external trading on Friday, although it oscillated at 7.0129 in internal trading on Monday.