Key Highlights-
- Japanese yen hits two-month low against the US dollar and all-time low vs the euro.
- Investors watch incoming PM Sanae Takaichi’s policy direction.
- Japan’s Finance Ministry is monitoring currency volatility
The Japanese yen slides to a two-month low against the US dollar on Tuesday as investors reacted to political uncertainty following Sanae Takaichi’s leadership victory in Japan’s Liberal Democratic Party (LDP). According to Reuters, traders are closely watching who will be appointed to Takaichi’s cabinet and what policies the new government will adopt.
The yen also fell to an all-time low against the euro, prompting Japan’s Finance Minister Katsunobu Kato to warn that authorities are monitoring markets closely for extreme movements. Bloomberg noted that such rapid depreciation can affect investor confidence and corporate planning, particularly for companies that rely on imports.
Incoming Leadership Fuels Currency Volatility
Takaichi, seen as the most accommodative candidate among the five who contested the LDP leadership, appointed former Premier Taro Aso as vice president of the party and former Finance Minister Shunichi Suzuki as secretary-general, Nikkei Asia reported. Bart Wakabayashi, Tokyo branch manager at State Street, told Bloomberg, “We’ll see if the expected policies that she is tied to will come through. The 150 yen per dollar mark is very important, psychologically and economically.”
According to experts, Takaichi’s leadership signals a balance between fiscal conservatism and growth-oriented policies. Her cabinet appointments, especially with Taro Aso in a key role, may prevent extreme spending decisions while reassuring markets that economic stability is a priority.
“The focus will be on steady growth and fiscal responsibility, without shocking investors or the currency markets,” Wakabayashi added.
Global Markets React
The euro also weakened following the resignation of France’s Prime Minister Sébastien Lecornu, Reuters reported. European Central Bank (ECB) officials indicated that interest rate adjustments could be needed if inflation falls too low. Meanwhile, the ongoing US government shutdown is limiting economic data from the United States, making it harder for investors to gauge the global financial picture, the BBC noted.
CNBC highlighted that the combination of a weaker yen and political uncertainty in Japan has increased volatility in both currency and bond markets. Investors are now cautious, as these shifts could affect global trade and investment flows.
Currency Levels and Market Response
On Tuesday, the yen fell 0.1% to 150.46 per dollar, earlier hitting 150.62—the weakest level since August 1. Its value against the euro dropped to 176.35, a fresh all-time low, before a slight rebound, Bloomberg reported.
#Japanese Finance Minister KATO Katsunobu said on Tuesday that the government will be vigilant for volatile movements on the currency market, as the yen slid to two-month lows past 150 to the dollar amid rising fiscal concerns.https://t.co/uzRFqVGLZ0
— Arab News Japan (@ArabNewsjp) October 7, 2025
Additionally, Japan also held a closely watched 30-year government bond auction, which went smoothly despite record-high yields. Finance Minister Kato emphasized that currency movements should reflect economic fundamentals, not speculation.
Analysts say that while a weaker yen can benefit exporters, extreme fluctuations could hurt companies relying on imported goods and raw materials. “Market stability is crucial, especially during political transitions,” as reported by a Tokyo-based economist to Reuters.
Political Context and Economic Implications
Takaichi’s win represents a shift toward accommodative fiscal policies, unlike her predecessor Shigeru Ishiba’s more hawkish stance, Nikkei Asia reported. Her cabinet appointments signal a mix of fiscal caution and policies aimed at supporting growth and investor confidence.
The yen’s recent slide occurs amid multiple global uncertainties: political instability in France, the US government shutdown, and signals from the ECB about potential interest rate adjustments. Collectively, these factors have made investors more cautious, thus driving fluctuations in global currency markets.
As Takaichi prepares to form her administration, it is estimated that both domestic and international investors will closely monitor how Japan manages its fiscal and monetary policies.
The next few weeks are likely to be critical in determining whether the Japanese yen slides continue or stabilize, with implications for global trade, export competitiveness, and international investment.
