Yen Drops Sharply After Takaichi Wins Japan LDP Leadership

Sanae Takaichi's victory in Japan's Liberal Democratic Party leadership election has triggered a sharp decline in the Japanese yen, which fell to its lowest level against the US dollar in five months, nearing 150 yen per dollar. As the likely first female Prime Minister, Takaichi is expected to implement expansionary fiscal policies and oppose further monetary tightening, complicating the Bank of Japan's plans for rate hikes. This shift has spurred a surge in Japan's stock market, with the Nikkei 225 reaching record highs, while the Bank of Japan governor maintains that rate increases depend on economic and price developments. The yen's weakening is also influenced by expectations of US Federal Reserve rate cuts and concerns about a US government shutdown, which limit the US dollar's upside. Market analysts highlight political and fiscal uncertainties in Japan and caution that the BOJ may remain cautious despite recent hawkish data. Overall, Takaichi's win signals a pivot towards fiscal easing that weighs on the yen and challenges monetary policy normalization.