By Rae Wee
SINGAPORE, Feb 11 (Reuters) – The yen held on to solid gains on Wednesday, bolstered by a rally in Japan’s stock market and bets that Prime Minister Sanae Takaichi’s landslide election victory puts her in a strong position to pursue more fiscally responsible policies.
Elsewhere, the dollar wobbled ahead of the key U.S. non-farm payrolls report due later on Wednesday, after a run of data overnight hinted at a softening in the world’s largest economy.
The yen was up 0.1% against the dollar at 154.22, building on a 1% rise in the previous session that also saw it rally against other currencies.
The euro was fetching 183.60 yen after a 1.2% drop on Tuesday, while sterling extended the previous day’s 1.3% fall against the Japanese currency and was down 0.2% at 210.17.
Trading was thinned in Asia with Japan markets closed for a holiday.
“Such a sweeping victory hands the Takaichi regime better control over the JGB bearish and the yen bearish aspects of the so-called Takaichi trade,” said Vishnu Varathan, Mizuho’s head of macro research for Asia ex-Japan.
“She can have a more coherent fiscal policy… she’s definitely got a plan which is going to make numeric sense, so there should be less doubt around that. What she needed was the political capital to pull it off, without having to make multiple compromises to many parties who want to do more (stimulus).”
The yen and Japanese government bonds have risen in the wake of Takaichi’s resounding win while investors have also poured into Japanese stocks in anticipation of stimulus flowing to consumers and Japan Inc.
Foreign inflows into Japanese equities increase demand for the yen.
Yusuke Miyairi, Nomura’s JPY FX and rates strategist, said dollar/yen could catch up with narrowing U.S.-Japan rate differentials and fall to around 150 if investors view Takaichi as becoming more fiscally responsible.
WAITING ON PAYROLLS
In the broader market, U.S. jobs data was the main focus for investors on Wednesday, where expectations are for nonfarm payrolls to have risen by 70,000 in January. The unemployment rate is seen holding steady at 4.4%
Ahead of the release, the dollar was on the back foot, with the euro trading 0.04% higher at $1.1899 while sterling rose slightly to $1.3646.
Overnight, the U.S. posted slower-than-expected retail sales in December, while a separate report showed growth in U.S. labour costs unexpectedly slowed in the fourth quarter.
“U.S. retail spending disappointed in December, and further consumer momentum now hinges on an improving labour market, putting added focus on today’s January employment report,” said OCBC strategists in a note.
White House economic adviser Kevin Hassett said on Monday that Americans could see smaller job growth numbers in the coming months due to lower population figures and higher productivity.
Markets are now pricing in roughly 60 basis points worth of easing from the Federal Reserve by December, even as some policymakers said rates could remain on hold for some time.
Against a basket of currencies, the dollar was down 0.12% at 96.80.
The Australian dollar rose 0.16% to $0.7086, while the New Zealand dollar was up 0.11% at $0.60495.
(Reporting by Rae WeeEditing by Shri Navaratnam)
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