Yen rally fizzles as Japan election boosts stimulus hopes

The yen slumped on Monday, halting a four-day rally, as a landslide victory for Japan’s ruling coalition in weekend elections boosted hopes for a government stimulus package.

Voters on Sunday backed conservative premier Shinzo Abe, despite a lacklustre economic performance, handing his Liberal Democratic Party (LDP) and its allies control of more than half of the upper house of parliament.

Abe repeated a pledge for action on a stimulus package to kickstart growth, which Japanese media said could be worth as much as 20 trillion yen ($196 billion).

The vote comes a couple of weeks before the Bank of Japan’s July meeting, where policymakers are widely expected to unleash more monetary easing measures, which would tend to weaken the yen.

“This is good news for anybody who’s keen to get long dollar-yen ahead of the July 29 BoJ” meeting, Gareth Berry, a foreign-exchange and rates strategist at investment bank Macquarie Group, told Bloomberg News.

“Give it another three weeks and dollar-yen bulls’ patience will be rewarded.”

Japan’s currency weakened against most of its 10 major peers, with the dollar jumping to 101.70 yen from 100.47 yen in the US on Friday.

The euro strengthened to 112.36 yen, up from 111.06 yen, while it slipped to $1.1041 from $1.1054 in New York.

In other trading, emerging currencies broadly rose on the dollar, with the oil-linked Malaysian ringgit and South Korean won both adding more than one percent against the greenback.

The won got support from stronger-than-expected US jobs data on Friday that boosted the outlook for the Asian nation’s exports to the world’s top economy.

The Labor Department said 287,000 jobs were created in June, 112,000 more than expected and a sharp improvement on May’s 11,000 that had raised fears of a possible recession.