The Japanese yen experienced a decline on Friday before the crucial upper house election which will take place on Sunday while the U.S. dollar maintained its strength because of positive economic indicators. The dollar price rose 0.14% to reach 148.81 yen while showing a nearly 1% weekly gain against major currencies which represents its strongest performance this week.
The potential loss of majority control by Japan’s ruling coalition creates investor uncertainty because it would create policy ambiguity and make trade negotiations with Washington more challenging. The possibility exists for the yen to drop below 150 yen per dollar after the election because of expected thin market conditions during Japan’s public holiday on Monday.
The yen faces downward pressure because investors worry about increased government spending that could result from opposition party gains. A shift in government policies would lead to increased JGB yields which would accelerate capital outflows from the country.
Meanwhile, the broader dollar rally continues. The dollar index reached 98.487 during the week while experiencing a 0.6% increase and a 0.91% increase from the previous week. The euro and pound showed minor gains on Friday yet their weekly performance remains negative because investors reduced their expectations about near-term Federal Reserve rate cuts after U.S. retail sales and inflation data exceeded expectations.
