Yen Slumps as Japan Awaits PM Decision; China Stimulus Boosts Risk Currencies

The yen dropped over 1% as investors awaited Japan’s PM run-off results, with hardline nationalist Takaichi in the lead. China’s recent stimulus measures improved risk appetite, aiding risk-sensitive currencies. The dollar index remained weak as the Fed shifted focus from inflation to supporting the labor market.

The yen fell more than 1% on Friday as investors awaited the results of Japan's prime ministerial run-off, with markets bracing for a potential victory by hardline nationalist Sanae Takaichi. If Takaichi wins, it could lead to an earlier interest rate hike or foreign exchange interventions, according to UBS analysts.

Meanwhile, China's recent spree of stimulus measures continued to uplift risk-sensitive currencies, stocks, and commodities. These measures included a 50 basis point reduction in the reserve requirement for banks, freeing up more funds for lending, as well as cuts in key interest rates.

The dollar index remained weak, hovering near a 14-month low, as traders anticipated further easing measures by the Federal Reserve. The Fed's focus has shifted from inflation control to maintaining a healthy labor market, which led to a significant interest rate cut last week.

(With inputs from agencies.)