Yen tumbles, dollar still under pressure

The yen fell ​to its lowest against the dollar since July 2024 on Tuesday as traders braced for a Japanese election and also ‌hit lows against European currencies, with the dollar pressured by worries about the Federal Reserve’s independence.

Those fears, after the Trump administration opened a criminal investigation into Chair Jerome Powell, remain the most important factor for markets in the long term, analysts said.

Still, with the administration’s move drawing criticism from key members of Trump’s Republican Party, it had less of an impact on daily price moves. Instead, the Japanese yen was the main mover, briefly sliding to the weak side ‌of 159 per dollar for the first time since July 2024.

That followed news from Kyodo that Japanese Prime Minister ​Sanae Takaichi had conveyed to a ruling party executive her intention to dissolve parliament’s lower house at the outset of its regular session scheduled to start on January 23.

The dollar was last up 0.5 percent on the yen at 158.9 yen.

Takaichi is ahead in ‍the polls, and, should she achieve a decisive electoral victory, investors may further buy into the “Takaichi trade” -- a view that the premier’s desire for more fiscal stimulus would push stocks higher, while sending bond yields higher and the yen lower.

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That was certainly Tuesday’s trade with the Nikkei share index hitting a new record high, and yields ⁠on 30 year Japanese government bonds surging 12 bps.

The yen sank to record lows against the euro and the Swiss franc , while also hitting ‍its weakest level against the British pound since August 2008.