SINGAPORE/LONDON - 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% on the yen at 158.9 yen.

 

POLL VICTORY COULD FURTHER SPUR 'TAKAICHI TRADE'

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.

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.

 

WOULD JAPAN INTERVENE DIRECTLY TO STEM YEN'S ​SLIDE?

For currency traders, the question is whether and when Japanese authorities might intervene directly in markets to stem the yen's slide.

"Dollar/yen at 160 first is the obvious level, though it could be higher, and it's not necessarily about levels, but speed of yen depreciation," said Nick Rees, head of macro analysis at Monex Europe.

He said thinking about levels could help "anchor market psychology," however.

Japan's Finance Minister Satsuki Katayama had earlier said she and U.S. Treasury Secretary Scott Bessent shared concerns over the yen's recent depreciation, as Tokyo stepped up threats of intervention to stem its fall.

 

POWELL INVESTIGATION WORRIES INVESTORS

Other currencies were steady, maintaining gains from the previous session.

The euro was little changed at $1.1671, having risen 0.27% the previous session, while sterling was up 0.14% at $1.3475, extending Monday's 0.47% gain.

The Swiss franc was flat at 0.7976 per dollar, while the dollar index recovered marginally to 99.01, having clocked its worst day in three weeks in the previous session.

U.S. CPI later in ⁠the day could drive moves in the dollar.

Consumer prices likely accelerated in December as some artificial ‌lowering of inflation linked to the government shutdown in November dissipated, though uncertainty over the shutdown's impact means the data could still surprise.

That could add volatility to the dollar, already shaken by the Fed speculation and global political developments this year, though no real trend in its movement is evident.

"I would have ‌expected, given everything that's ⁠going on, to see a little more direction," said Rees.

"But you can argue things are pushing both directions, the Fed is clearly a dollar negative, but at the ⁠moment, markets see the dollar functioning a bit as a safe haven on all the geopolitical developments."