Asia FX cautious amid US govt shutdown; yen tumbles after Takaichi’s LDP win

Investing.com-- Most Asian currencies were subdued on Monday as investors stayed cautious amid the ongoing U.S. government shutdown, while the Japanese yen slumped after Sanae Takaichi won the ruling party leadership election, which is seen as supportive of loose monetary policy.

The US Dollar Index, which measures the greenback against a basket of major currencies, rose 0.3% in Asian trading. US Dollar Index Futures gained 0.4% as of 04:01 GMT.

Japanese yen tumbles on expectations of dovish policy tilt

Takaichi, a conservative lawmaker and long-time advocate of expansionary “Abenomics”-style policies, secured victory in the Liberal Democratic Party (LDP) runoff on Saturday with 54.25% of the vote.

Takaichi is poised to be confirmed as prime minister in a parliamentary session in mid-October, barring any resistance from opposition parties. She will become Japan’s first female prime minister.

Her win sets Japan on a path toward more government spending, which is seen as reducing the urgency for monetary tightening by the Bank of Japan.

The Japanese yen’s USD/JPY pair jumped as much as 1.7% to 150 yen, its highest level in over a month.

Japanese government bonds sold off alongside the currency, with the long-term bond yields rising sharply, reflecting expectations of increased issuance to fund stimulus measures.

Asia FX trades cautiously amid US shutdown, regional holidays

Elsewhere in Asia, currency markets were quiet as key markets including China, South Korea, and Taiwan, were shut due to respective public holidays, while investors also assessed the impact of a prolonged U.S. government shutdown.

The stalemate in Congress has delayed several key economic releases, including nonfarm payrolls and inflation data, clouding the outlook for Federal Reserve policy.

Traders are now focused on Fed Chair Jerome Powell’s speech scheduled for Thursday, which could provide clues on the central bank’s rate trajectory.

The Singapore dollar’s USD/SGD edged up 0.3%, while the South Korean won’s USD/KRW gained 0.2%.

The Indian rupee’s USD/INR pair ticked 0.1% higher, not far from record highs reached last month.

The Chinese yuan’s offshore pair USD/CNH ticked 0.1% higher, while the Australian dollar’s AUD/USD was largely unchanged.