Yen keeps falling before Japan's PM vote

The Japanese yen fell in Asian trading on Tuesday against a basket of major and minor currencies, extending its losses for the third consecutive day against the US dollar, ahead of the parliamentary vote to choose a new prime minister in the world’s fourth-largest economy.

Sanae Takaichi, leader of the ruling Liberal Democratic Party, is steadily moving toward victory in the race for Japan’s premiership, which would make her the first woman in the country’s history to lead the government, after securing decisive political backing that strengthens her chances of winning the post.

Price Overview

• The USD/JPY exchange rate rose by about 0.3% to ¥151.15 from an opening level of ¥150.74, after recording a low of ¥150.47.

• The yen ended Monday’s session down 0.1% against the dollar, marking its second consecutive daily loss, as corrective moves and profit-taking continued from its two-week high at ¥149.37.

Political Developments

Kyodo News reported that the ruling Liberal Democratic Party and the Japan Innovation Party announced the formation of a formal coalition, in a strategic move aimed at securing a parliamentary majority ahead of the decisive vote to elect the new prime minister later today.

Sanae Takaichi, who is seeking to become Japan’s first female prime minister, faced a significant political setback earlier this month after the sudden withdrawal of Komeito — the Liberal Democratic Party’s traditional coalition partner for more than 26 years.

The new alliance with the Japan Innovation Party, known for its hardline right-wing positions, appears to give Takaichi strong momentum toward power, as both parties share similar views on economic and defense issues, including support for accommodative monetary policy and higher military spending to strengthen the country’s defense capabilities.

According to reports from Japan’s FNN network, Takaichi plans to appoint former Regional Revitalization Minister Satsuki Katayama as finance minister in her upcoming cabinet.

Opinions and Analysis

• Ray Attrill, Head of FX Strategy at National Australia Bank, said: “If Takaichi is confirmed as prime minister today, the next question will be about the policies she will pursue — particularly regarding monetary policy and fiscal direction — and whether the Ishin Party has set specific conditions for its alliance with the Liberal Democratic Party.”

• Attrill added that these significant political developments in Japan could open the door to notable volatility in yen movements.