Yen Slumps to Weakest Since February in LDP-Results Aftermath

Core Insights - The yen has weakened significantly, reaching 152.34 against the dollar and a record low against the euro, following Sanae Takaichi's unexpected victory as the new leader of Japan's ruling Liberal Democratic Party [2][4] - Market expectations for a Bank of Japan interest rate hike have diminished, with a 25% chance of a move at the BOJ's upcoming meeting, down from 57% prior to the leadership vote [5] Currency Performance - The yen's depreciation has sparked renewed interest in the carry trade strategy, where investors borrow low-yielding yen to invest in higher-yielding currencies [5] - Bank of America has revised its forecast for the yen to end the year at 155 per US dollar, up from a previous estimate of 153, citing increased political and fiscal risks [6] Market Reactions - Hedging costs against further yen depreciation have surged, with premiums for hedging now at their highest level in over three years [7] - Analysts from ING noted that the new government under Takaichi is expected to influence a stronger economy, leading to a steeper yield curve and an equity rally [5]