Yen weakest since mid-February on fiscal fears

By Karen Brettell (Reuters) -The Japanese yen reached its weakest level since mid-February against the dollar on Wednesday on rising concerns about an increase in fiscal spending in Japan, while the euro fell on political uncertainty in France. The dollar has also likely benefited from a lack of government economic data as the federal government remains shut. That data would otherwise add to market volatility and may show a weakening economy, analysts said. The surprise election of Sanae Takaichi to Japan’s ruling Liberal Democratic Party on Saturday has dented the yen on expectations of greater government stimulus. “The market is running with the idea that the Takaichi government would be pursuing policies that are more similar to what we saw during the Abenomics years. In other words, expansionary fiscal policy and less restrictive monetary policy. But at the moment it's obviously still an open question what the policies will be,” said Vassili Serebriakov, an FX and macro strategist at UBS in New York. Former Japanese Prime Minister Shinzo Abe adopted expansive policies to combat Japan's long-term deflation and stimulate economic growth after 2012. Against the yen, the dollar was last up 0.53% at 152.7. It earlier reached 152.99, the highest since February 14, and has risen from 147.44 on Friday. "The yen will likely weaken until there is clarity on FX and bond issuance policies," Societe Generale strategist Kit Juckes said in a report on Wednesday. "Anything that helps the Japanese economy grow, would eventually be very yen positive. The yen will only fall while we remain in an information vacuum, about both the U.S. economy and Japanese government policies." The lack of U.S. government economic data that might point to a slowing economy is helping the dollar gain on peers. “Once the focus shifted to developments outside of the U.S. and then there's no kind of negative drag on the dollar from potentially weaker U.S. data, then the dollar is doing well,” said Serebriakov. Minutes from the Fed's September meeting released on Wednesday showed that officials agreed that risks to the U.S. job market had increased enough to warrant an interest rate cut, but many remained wary of high inflation. The U.S. central bank is widely expected to cut rates by 25 basis points at its October 28-29 meeting, and traders are pricing in 78% odds of an additional cut in December, according to the CME Group’s FedWatch Tool. The euro was last down 0.33% at $1.1616 and reached $1.1597, the lowest since August 27. French caretaker Prime Minister Sebastien Lecornu said on Wednesday a deal could eventually be reached on a 2026 budget despite the country's political crisis.  France's fifth prime minister in two years, Lecornu tendered his and his government's resignation on Monday, just hours after announcing the cabinet line-up, making it the shortest-lived administration in modern France. The euro pared losses after Lecornu also said on Wednesday that President Emmanuel Macron could be in a position to nominate a new prime minister in the next 48 hours. The New Zealand dollar fell 0.33% versus the greenback to $0.5779 and reached $0.5735, the lowest since April 11. New Zealand's central bank cut its benchmark rate by a larger-than-expected 50 basis points on Wednesday as policymakers signalled concerns about the frail state of the economy and kept the door open for further easing. In cryptocurrencies, bitcoin gained 1.26% to $123,551.56 but remained below the record $126,223.18 reached on Monday. (Reporting by Karen Brettell; Additional reporting by Stefano Rebaudo; Editing by Andrea Ricci and Aurora Ellis)

(The article has been published through a syndicated feed. Except for the headline, the content has been published verbatim. Liability lies with original publisher.)