FOREX: Yen set for best week in close to 15 months

The yen was set for its best week in almost 15 months on Friday, having climbed steadily after Japanese Prime Minister Sanae Takaichi's historic election win allayed some investor worries about the nation's fiscal health.

A resurgent yen JPY= has been the main focus for the foreign exchange market this week, particularly as its rise confounded initial expectations that a selloff in the currency could gather pace if Takaichi secured a strong mandate.

It was last down 0.2% at 153.08 per dollar, but was set to gain 2.7% for the week, which would mark its largest advance since November 2024.

Against the euro, the yen EURJPY= was similarly poised for a 2.3% weekly jump, its strongest performance in a year. It was also up roughly 2.7% against the British pound GBPJPY= for the week.

"The election outcome might be seen as marking an end to the political instability that has persisted since July last year, suggesting that short-yen positions have been unwound," said Hirofumi Suzuki, chief FX strategist at SMBC.

"There may still be room for further yen appreciation."

Since the weekend election, Japanese stocks .N225 have been on a tear, while government bonds (JGBs) and the yen have steadily risen, in an apparent vote of confidence in Takaichi's "responsible" fiscal policy.

"We expect her administration to be a responsible steward of fiscal policy, even while deploying targeted inflation-relief and growth measures," said Drew Edwards, head of the Usonian Japan Equity team at GMO.

"This supports JGB stability and reduces yen-volatility risk."

Japan is "very close" to durably achieving the central bank's 2% inflation target, hawkish Bank of Japan board member Naoki Tamura said on Friday, signalling the chance of an interest rate hike in coming months.

WAITING ON INFLATION

In the broader market, currencies were mostly rangebound ahead of the release of U.S. inflation data later in the day, which is likely to shape expectations for the Federal Reserve's rate outlook.

The euro EUR= was down slightly at $1.1863, while sterling GBP= eased 0.1% to $1.3613.

The Australian dollar AUD=, which has soared in recent weeks on a hawkish Reserve Bank of Australia, was down 0.3% at $0.7072, but set to rise close to 0.9% for the week.

The U.S. dollar was meanwhile headed for a weekly loss, pressured by a confluence of factors including strength in other currencies, as well as some doubts about the robustness of the U.S. economy.

Against a basket of currencies, the greenback =USD was up slightly at 97.01, though remained roughly 0.7% lower for the week.

Overnight, data showed the number of Americans filing new applications for unemployment benefits decreased less than expected last week.

That followed data which showed U.S. job growth unexpectedly accelerated in January, though the gain likely overstated the health of the labour market, with the devil in the details.

"The breadth of job creation remains relatively narrow, with healthcare, social assistance and construction driving the bulk of the improvement, and benchmark revisions showed that payrolls were negative in four of the 12 months in 2025," said Blerina Uruci, chief U.S. economist at T. Rowe Price, who cautioned against taking "too much comfort" from the report.

Traders continue to price in roughly two Fed rate cuts this year, with the first expected to come in June. 0#USDIRPR

"Unless we see big surprises in the (inflation) data, I think markets will be pretty happy with what they're currently pricing," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"We think that the dollar could probably continue to consolidate in the near term."

-Jiaxing Li and Rae Wee/Reuters