Yen on guard ahead of parliament vote for next prime minister

SINGAPORE: The yen held steady on Tuesday, ahead of a parliament vote in Japan later in the day that is almost certain to see hardline conservative Sanae Takaichi become the country’s first female prime minister.

Currencies were mostly rangebound in the early Asian session, with the dollar little changed as an ongoing U.S. government shutdown left investors flying blind on data ahead of next week’s Federal Reserve meeting.

The yen was last 0.1% stronger at 150.61 per dollar, having fallen slightly in the previous session as investors anticipated that Takaichi’s likely premiership - following the backing of the right-wing opposition party Ishin - could boost government spending and muddy the outlook for the Bank of Japan’s (BOJ) rate-hike path.

“Assuming that we’re going to see Takaichi confirmed as prime minister later today, then what follows from that? Particularly signalling in terms of monetary policy as well as potential fiscal policy changes, and understanding what, if any, conditions the Ishin party has managed to extract from the LDP as a condition of forming the coalition,” said Ray Attrill, head of FX research at National Australia Bank (NAB).

“I think that potentially makes for some yen volatility.”

Takaichi has finalised a plan to appoint former regional revitalisation minister, Satsuki Katayama, as finance minister, broadcaster FNN reported on Tuesday.

Elsewhere, sterling last bought $1.3408, while the euro rose 0.08% to $1.1651, helped slightly by easing political uncertainty in France.

The U.S. dollar index was little changed at 98.55, while the Australian dollar rose 0.13% to $0.6521.

The overall market mood was largely upbeat, after U.S. President Donald Trump said on Monday he expects to reach a fair trade deal with Chinese President Xi Jinping and White House economic adviser Kevin Hassett separately said that the 20-day U.S. federal government shutdown is likely to end this week.

Jitters over credit risks across U.S. banks also dissipated slightly.

Yet, the optimism failed to move currencies significantly, with investors largely on guard ahead of a slew of risk events next week, headlined by the Fed’s policy meeting.

“My sense is that next week is probably a far more important week in terms of risk,” said NAB’s Attrill.

“Given where markets are priced…the risk is that the commentary surrounding a cut next week really sort of leads to some questioning of current confidence about a follow-up move in December,” he said of the Fed cut expectations.

In other currencies, the New Zealand dollar was up 0.12% at $0.5752, while the offshore yuan was steady at 7.1216 per dollar.