Yen Slips as Takaichi Takes Helm Amid Fiscal Policy Shifts

The Japanese yen fell to a one-week low on Tuesday, reacting to the election of hardline conservative Sanae Takaichi as Japan's first female prime minister. Traders worry her policies might affect interest rate expectations and lead to increased fiscal spending, further impacting the currency's stability.

Takaichi's election comes after backing from the right-wing opposition party Ishin, and it solidified her position as the leader of Japan's ruling Liberal Democratic Party. Notably, she plans to appoint Satsuki Katayama, a former regional revitalisation minister known for favoring a stronger yen, as finance minister, sparking market speculation about potential shifts in currency policy.

Despite the yen's struggles against the dollar, euro, and sterling, the broader market showed resilience with the dollar index rising. The market anticipates potential fiscal stimulus and looser monetary policy, complicating the Bank of Japan's path for possible interest rate hikes as Takaichi's government aims to address inflation and purchasing power concerns.