Yen Weakens Sharply as Ishiba Resigns, Markets Brace for Political Uncertainty and Looser Policy Outlook

Economic

Forex

Summary:

The Japanese yen dropped across the board following Prime Minister Shigeru Ishiba's sudden resignation, fueling investor concerns about leadership transition, policy direction...

Currency Markets React to Sudden Leadership Vacuum

The yen declined significantly in early Asian trading following Prime Minister Shigeru Ishiba’s abrupt resignation on Sunday. The move introduced heightened political uncertainty at a time when Japan’s economy is already grappling with inflation management, structural stagnation, and weak investor confidence.

The currency fell 0.7% against the US dollar to 148.43 and recorded losses exceeding 0.5% against both the euro and the pound, trading at 173.77 and 200.15 respectively. These reactions reveal a causal relationship between the political upheaval and immediate risk repricing in currency markets, particularly as traders speculate about the next leader's policy stance.

Potential Successor Takaichi Suggests Shift Toward Dovish Policies

Attention has turned to potential replacements, including LDP veteran Sanae Takaichi, who has voiced criticism of the Bank of Japan’s recent rate hikes and appears supportive of more accommodative fiscal and monetary strategies. If she ascends to leadership, investors anticipate a rollback in tightening efforts and a return to ultra-loose policies.

While the Bank of Japan was unlikely to raise rates in September regardless, as noted by SMBC strategist Hirofumi Suzuki, future monetary decisions will increasingly depend on the direction set by the new prime minister. This creates a scenario of heightened uncertainty, which, even without confirmed policy reversals, correlates with the observed selloff in the yen and Japanese government bonds (JGBs).

Bond Market Signals Escalating Uncertainty

Yields on 30-year JGBs surged to a record high last week, revealing how investor anxiety extends beyond the currency market. The move reflects elevated term premiums, with markets demanding higher compensation for long-term risk in an environment of uncertain fiscal governance.

The Liberal Democratic Party’s current lack of a clear majority compounds these concerns, suggesting that decision-making will remain fragmented and unpredictable for the near future. Saxo Bank’s Charu Chanana notes that volatility will persist across yen, bonds, and equities until a firm successor emerges with a transparent agenda.

US Labor Market Weakness Fuels Dollar Volatility

While the yen tumbled, the US dollar saw mixed performance. The greenback had suffered a sharp drop on Friday after a disappointing nonfarm payrolls report indicated job growth slowed substantially in August, pushing the unemployment rate to a nearly four-year high of 4.3%.

This directly impacted expectations around the Federal Reserve’s next move. Traders now see an 8% probability of a 50-basis-point cut in September, up from 0% just a week ago. This shift indicates a clear cause-and-effect dynamic between weakening labor data and policy expectations.

Compounding volatility in global markets is the growing tension around central bank independence in the US. Treasury Secretary Scott Bessent has publicly questioned the Fed’s rate-setting authority, echoing President Trump’s repeated criticism of Chair Jerome Powell.

Trump is currently evaluating candidates to replace Powell, a decision that could further alter the Fed’s policy direction. According to Barclays economists, this uncertain environment now warrants three 25-basis-point cuts through the end of the year, with the next in September followed by October and December.

Other Currency Movements Reflect Global Fragility

The broader currency landscape remains sensitive to overlapping political developments. The British pound and euro both saw minor declines on Monday after posting gains on Friday. Traders are also monitoring a confidence vote in France involving Prime Minister Francois Bayrou, which may deepen political instability in the eurozone’s second-largest economy. The Australian and New Zealand dollars both edged lower as global risk sentiment remains fragile.

The Japanese yen’s steep decline underscores the fragile intersection of political transition and economic uncertainty. Ishiba’s resignation not only disrupts Japan’s fiscal outlook but also introduces speculation around the reversal of the Bank of Japan’s tightening path. Meanwhile, global currency markets remain tightly linked to shifting Fed expectations and the erosion of central bank independence. Until leadership in both Japan and the US becomes clearer, investors are likely to face continued volatility, cautious positioning, and shifting bets on policy direction.

Source: Reuters

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Gerik

Economic

Commodity

Employment Data Weakens, Rate Cut Expectations Surge

The latest US labor market data has triggered a decisive shift in investor sentiment. With the unemployment rate climbing to its highest level since 2021 and hiring momentum clearly slowing, traders are increasingly betting on imminent monetary easing. Specifically, swap markets now price in nearly three interest rate cuts by year-end.

This sharp repricing reflects a causal relationship between the weak job report and policy expectations: as economic slack grows, the Federal Reserve is seen as having less justification to maintain elevated rates. Lower interest rates enhance the attractiveness of gold by reducing the opportunity cost of holding non-yielding assets, explaining the metal’s surge to just $10 below its record high of approximately $3,600 an ounce in early Monday trading in Asia.

Geopolitical Uncertainty and Institutional Fractures Strengthen Gold's Safe-Haven Role

Beyond macroeconomic fundamentals, geopolitical tensions and institutional fragility are reinforcing demand for gold. Notably, former President Donald Trump’s renewed criticism of the Federal Reserve has raised alarm over the central bank’s autonomy. His declared intention to secure a “majority” influence over the Fed and replace Governor Lisa Cook with a dovish figure has catalyzed fears of politically driven monetary policy.

Goldman Sachs has warned that a compromised Fed could prompt significant capital reallocation from Treasuries into gold, potentially pushing bullion prices toward $5,000 an ounce. This scenario highlights a correlation, not merely causation: while institutional instability does not mechanically lead to gold rallies, investor behavior tends to mirror perceptions of systemic risk.

Policy Moves Reinforce Precious Metals' Appeal

Further boosting gold’s standing, the Trump administration recently formalized an exemption of gold bars from country-based tariffs. This decision removed a regulatory overhang that had previously created confusion in the precious metals market after a US Customs ruling appeared to make gold subject to import taxes. While the tariff exemption does not directly raise demand, it eliminates friction in cross-border bullion flows, preserving gold’s liquidity and appeal for large institutional investors.

Meanwhile, the People’s Bank of China (PBOC) continues its systematic diversification strategy, marking a tenth consecutive month of gold accumulation in August. The PBOC’s purchases signal a deliberate effort to reduce dependency on US dollar reserves, aligning with broader dedollarization trends in emerging markets. This development underscores a deeper structural shift rather than a reactive trading move, with long-term implications for global demand dynamics. The Chinese central bank’s actions exhibit a strong correlation with the broader theme of de-risking from US financial assets, which indirectly elevates gold’s strategic importance.

Technical Positioning and Market Momentum

Spot gold rose 0.2% to $3,592.91 per ounce as of 6:52 a.m. in Singapore. Although the Bloomberg Dollar Spot Index also edged higher by 0.1%, gold’s resilience in the face of a stronger dollar suggests that haven demand is currently a more dominant price driver than currency effects. Silver and platinum saw marginal declines, while palladium remained stable, reinforcing gold’s unique position as the asset of choice during episodes of macro-policy uncertainty.

The near-record price of gold reflects a convergence of short-term monetary dynamics and long-term structural realignments. Weak US employment data has materially shifted expectations toward looser Fed policy, directly boosting gold prices. Simultaneously, geopolitical uncertainty, fears of compromised central bank independence, and China’s continued diversification strategy have all intensified the metal’s appeal as a hedge. These intertwined causal and correlational factors suggest that, barring any abrupt policy reversal, gold remains on firm footing to potentially challenge or exceed its historical highs in the months ahead.

Source: Bloomberg

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Oliver Scott

Japan's economy expanded an annualised 2.2% in the April-June period from the previous quarter, much faster than the preliminary reading, anchored by upward revision in consumption, government data showed on Monday.

The revised gross domestic product (GDP) reading released by the Cabinet Office compared with economists' median forecast and the initial reading of 1.0% growth.

On a quarter-on-quarter basis, GDP grew 0.5%, compared with a median forecast and the initial estimate of a 0.3% rise.

While the figures show brisk growth in the world's fourth-largest economy, growing political uncertainty could complicate policymaking in the months ahead after Prime Minister Shigeru Ishiba resigned on Sunday.

The focus will now turn to July-September GDP figures to gauge how far U.S. tariffs have weighed on the economy.

Tokyo and Washington last week formalised a trade deal, implementing lower tariffs on Japanese automobile imports and other products that were announced in July, providing some relief to the country's export-heavy economy.

Private consumption, which accounts for more than half of the Japanese economy, inched up 0.4%, versus a 0.2% uptick in the preliminary reading.

The capital expenditure component of GDP, a barometer of private demand, rose 0.6% in the second quarter, revised down from 1.3% in the initial estimate. Economists had estimated a 1.2% rise.

External demand, or exports minus imports, contributed 0.3 percentage point to growth, in line with the preliminary reading. Domestic demand contributed 0.2 percentage point, reversing a 0.1 percentage point drag in the initial figure.

Source: Yahoo Finance

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Bethany Sullivan

For much of the past two months, ever since the historic loss of Japan's LDP in July's parliamentary elections, we have mocked the highly unpopular Japanese PM Shigeru Ishiba, who was clinging to the post despite record disapproval and a clear shift in popular sentiment that had clearly stripped him of mandate to be Japan's leader.

A few hours ago, Ishiba finally decided to prove us wrong and announced he will step down - following weeks of calls for his departure - a decision that will set in motion a leadership race that may generate concerns for investors.

“While I feel there are still things I wish to do as premier, I have made the difficult decision to step down,” Ishiba said at a press conference in Tokyo on Sunday. “Having seen the US trade negotiations through, I felt that now is the right time to stand down and give way to my successor.”

“I felt that if I continued amid a vote on an early leadership race, it could have created an irreversible division within the party, which is certainly not my intention.” He will stay on as prime minister until his successor takes over.

Ishiba’s resignation brings to an end a tenure marked by humiliating election results that stripped the Liberal Democratic Party’s ruling coalition of its majorities in both chambers of parliament and left market participants unsure of Japan’s fiscal plans. His departure is likely to fuel uncertainty among investors over the coming weeks until a new leader is chosen. It will also likely spark debate among market participants whether his replacement will follow through with the trade deal that Japan reach with Trump.

As Bloomberg warns, the risk of further instability could weigh on the yen and longer-term bonds when trading opens Monday in Asia. Japan’s currency was one of the weakest performers among its Group of 10 peers last week, while yields on longer-term Japanese government debt reached fresh multi-decade highs.

“Prime Minister Ishiba was known for his strict stance on fiscal discipline,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, flagging the likelihood of upward pressure on super-long yields. “While it remains unclear who will become the next prime minister, it’s difficult to envision anyone with a fiscal discipline stance better than or even equivalent to his.”

Which, in a country best known for the short tenure of its prime minister, more easing to placate the masses is on deck, even if it means another surge in inflation, and even higher prices in gold and crypto as the local population protects what little is left of its purchasing power.

The LDP was set to hold a vote Monday if it should bring forward a leadership election by two years, but that had looked increasingly likely to turn into a vote of no confidence in the premier. That vote will now be canceled, and instead the LDP will hold a leadership race, Ishiba said.

Lawmakers jockeying to position themselves as the next premier will need at least 20 other members of parliament to support their candidacy in order to enter the race. Whoever emerges top in the party contest will then have to win a vote in parliament to become prime minister in a fractured Diet.

Potential candidates within the ruling party include Sanae Takaichi, 64, a former internal affairs minister who finished second to Ishiba in an LDP leadership race last year. If chosen, Takaichi would be Japan's first female prime minister.

A party veteran who has held a variety of roles, including economic security and internal affairs minister, she is known for conservative positions such as revising the pacifist postwar constitution; Takaichi is a regular visitor to the Yasukuni shrine to honor Japan's war dead, viewed by some Asian neighbors as a symbol of past militarism.

She is a fan of Abenomics economic policies and favors stimulus measures which means any hope for a rate hike by the "independent" Bank of Japan would be quietly put to pasture under her leadership (we leave the discussion of BOJ "independence" to an other time).

A member of Japan’s largest nationalist organisation Nippon Kaigi and known as a hard-line conservative, Takaichi opposes same-sex marriage and supports a requirement for couples to share a surname after marriage. She has also stated that a government gender equality plan could "destroy the social structure based on family units" has voiced opposition to proposals to change the law so that a woman could become the Emperor of Japan.

Takaichi supports imprisoning those who damage Japan's national flag, and is considered a China-hawk when it comes to foreign policy and supports revising article 9 of the Japanese constitution which prohibits Japan from entering armed conflict. She’s also a vocal critic of Chinese economic practices such as intellectual property theft and calls on Japan to lessen its economic dependence on China.

Most notably, she believes that immigration to Japan risks destabilizing Japanese society and argues that Japanese heritage must be protected. As such, should she replace Ishiba, she would become the latest hard-line conservative to take charge in blowback to the catastrophic policies unleashed by the liberal left in recent years.

Among other possible candidates, Takayuki Kobayashi, a former economic security minister, is on the right-wing of the party and would be a possible rival to Takaichi in garnering support from that section of lawmakers. Yoshimasa Hayashi, the current chief cabinet secretary, as well as Finance Minister Katsunobu Kato, might also show interest in succeeding Ishiba.

“If Ms. Takaichi is appointed, bond selling could intensify due to the risk of a credit rating downgrade,” Sumitomo Mitsui Trust’s Inadome said. In that scenario, “we could see a triple dip: falling bond prices, a weaker yen, and declining stock prices.”

A Koizumi or Hayashi win is more likely to return the yield curve to its previous shape, he added.

Traditionally, the LDP’s dominance in parliament all but assures that its leader will become prime minister. With no majority in either house, there’s only a slim chance the leader of the LDP could fail to clinch the premiership, though that decision is still some weeks away.

The next premier will have to navigate challenges ranging from global trade headwinds to simmering resentment at home over soaring costs of living. Ishiba had called for fresh cash handouts to support consumers, while opposition parties sought tax cuts or higher spending, proposals that have given investors cause for concern.

In the press conference held Sunday, Ishiba said that consumers and businesses will need more support and pressed the need to maintain momentum for wage hikes. He indicated that he essentially decided to step down following the July election setback, but saw a need to make more progress on the trade deal with the US first.

US President Donald Trump signed his trade agreement with Japan and put it into effect with an executive order on Thursday. Although current tariff rates will be lowered with the new order, Japan will still have to pay a maximum 15% tariff on its products, including exports of cars and auto parts.

Still, the signing of the deal leaves Ishiba with some kind of legacy to walk away with after a troubled year at the helm.

Source: Zero Hedge

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Winkelmann

Economic

Political

Forex

The yen fell broadly on Monday following news that Japanese Prime Minister Shigeru Ishiba had resigned, while the dollar was nursing losses after tumbling on a weak U.S. jobs report that cemented expectations for a Federal Reserve rate cut this month.Ishiba on Sunday announced his resignation, ushering in a potentially lengthy period of policy uncertainty at a shaky moment for the world's fourth-largest economy.

The yen slumped in response in early Asia trade on Monday, falling 0.7% against the dollar to 148.43.The Japanese currency similarly slid more than 0.5% against the euro and sterling to 173.77 and 200.15, respectively.Investors are focusing on the chance of Ishiba being replaced by an advocate of looser fiscal and monetary policy, such as Liberal Democratic Party (LDP) veteran Sanae Takaichi, who has criticised the Bank of Japan's interest rate hikes."The probability of an additional rate hike in September was never seen as high to begin with, and September is likely to be a wait-and-see," Hirofumi Suzuki, chief currency strategist at SMBC in Tokyo, said of the BOJ's next move.

"From October onward, however, outcomes will in part depend on the next prime minister, so the situation should remain live."Concerns over political uncertainty prompted a selloff in the yen and Japanese government bonds (JGBs) last week, sending the yield on the 30-year bond to a record high."With the LDP lacking a clear majority, investors will be cautious until a successor is confirmed, keeping volatility elevated across yen, bonds and equities," said Charu Chanana, chief investment strategist at Saxo."Near-term, that argues for a softer yen, higher JGB term-premium, and two-way equities until the successor profile is clear."

SEPTEMBER FED CUT BAKED IN

In other currencies, the dollar was recouping some of its heavy losses, helped in part by the yen's weakness, after falling sharply on Friday on data that showed further cracks in the U.S. labour market.The closely watched nonfarm payrolls report showed U.S. job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%.Investors ramped up bets of an outsized 50-basis-point rate cut from the Fed later this month in the wake of the release and are now pricing in an 8% chance of such a move, as compared to none a week ago, according to the CME FedWatch tool.

Against the dollar, sterling fell 0.14% to $1.3488, having risen more than 0.5% on Friday. The euro was similarly down 0.13% at $1.1705, after hitting a more than one-month high on Friday.Focus for markets on Monday will also be on French Prime Minister Francois Bayrou's confidence vote, which he is expected to lose, plunging the euro zone's second-largest economy deeper into political crisis.

The dollar index steadied at 97.88, after sliding more than 0.5% on Friday.

"Given the more elevated downside risks to the employment side of the mandate, we think a rate cut at the September meeting is all but assured. We continue to expect a 25bp cut at that meeting," said Barclays economists in a note."However, we change our Fed call by adding another 25bp cut in October, while leaving our December cut unchanged. In all, we now think the FOMC will proceed with three 25bp cuts this year, easing the policy stance in the face of the slowing labor market."U.S. Treasury Secretary Scott Bessent on Friday called for renewed scrutiny of the Fed, including its power to set interest rates, as the Trump administration intensifies its efforts to exert control over the central bank.

President Donald Trump is considering three finalists for Federal Reserve chair to replace Jerome Powell, whom the president has criticised all year for not cutting rates as he has demanded.Elsewhere, the Australian dollar eased 0.06% to $0.6551, while the New Zealand dollar was down 0.1% at $0.5886.

Source: Reuters

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Samantha Luan

Cryptocurrency

Forex

Economic

Imagine a digital currency that combines the unwavering reliability of traditional banking with the lightning-fast innovation of fintech. That’s precisely what South Korea is envisioning. A groundbreaking proposal is currently under consideration that could reshape the future of digital finance, specifically concerning won stablecoin issuance.

Why a Bank-Fintech Alliance for Won Stablecoin Issuance?

South Korea’s State Affairs Planning Committee is exploring a plan to grant the authority for a Korean won-pegged stablecoin to a unique consortium. This group would comprise both established banks and agile non-bank entities, as reported by News1. This approach isn’t just a whim; it’s a carefully considered strategy.

The committee strongly favors this consortium model for several compelling reasons:

● Stability Meets Innovation: Traditional banks bring a crucial layer of financial stability and trust, which is paramount for any currency. Fintech firms, on the other hand, inject the necessary innovation to drive adoption and create diverse use cases.

● Global Competitiveness: To effectively compete with global digital currencies, a locally issued stablecoin needs both robustness and cutting-edge features. This blend is seen as key to success.

● Expanded Utility: The participation of fintech companies is essential for developing and expanding the practical applications of the stablecoin, making it more useful for everyday transactions and broader economic activity.

Shifting Regulatory Sands: A New Control Tower for Digital Currency?

Interestingly, the proposal also suggests a significant shift in regulatory oversight. Instead of the existing Financial Services Commission (FSC), the licensing authority for won stablecoin issuance would be granted by a new body: the Financial Stability Council.This new council is envisioned as the country’s economic and financial ‘control tower.’ Such a move indicates a desire for a more centralized and comprehensive approach to managing the financial implications of digital currencies, underscoring their growing importance to national economic stability.

Unpacking the Potential: Benefits and Hurdles of Won Stablecoin Issuance

This strategic direction for won stablecoin issuance holds immense promise, but like any significant financial innovation, it also presents challenges.

Potential Benefits:

● Enhanced Financial Stability: By anchoring the stablecoin to the Korean won and involving regulated banks, the risk of volatility often associated with cryptocurrencies can be significantly mitigated.

● Boost for Fintech Innovation: This framework could foster a vibrant ecosystem for fintech companies, encouraging the development of new services and applications built on the stablecoin.

● Global Competitiveness for the Won: A well-regulated and widely adopted won stablecoin could elevate the Korean won’s presence in the global digital economy.

● New Use Cases for Digital Payments: From faster cross-border transactions to innovative smart contract applications, the stablecoin could unlock numerous efficiencies.

Potential Hurdles:

● Regulatory Complexities: Crafting robust regulations that balance innovation with consumer protection and financial stability will be an ongoing challenge.

● Interoperability: Ensuring the stablecoin seamlessly integrates with existing financial infrastructures and other digital platforms is crucial for widespread adoption.

● Public Adoption and Education: Overcoming public skepticism and educating users about the benefits and security of a new digital currency will require considerable effort.

What’s Next for South Korea’s Digital Currency Journey?

The discussions surrounding won stablecoin issuance are still in their early stages, but the direction is clear: South Korea is serious about its place in the digital finance future. This move could set a precedent for other nations considering their own central bank digital currencies (CBDCs) or privately issued stablecoins.For businesses, this could mean new payment rails and opportunities for digital product development. For consumers, it promises more efficient and potentially cheaper ways to transact. It’s a fascinating development that bears close watching as South Korea aims to lead in the evolving digital currency landscape.

South Korea’s thoughtful approach to won stablecoin issuance, leveraging both traditional banking strength and fintech agility, is a strategic masterstroke. By aiming for a stable, innovative, and globally competitive digital currency, the nation is positioning itself at the forefront of the future of finance. This blend of stability and innovation is precisely what could make a Korean won-pegged stablecoin a formidable player in the global digital economy.

Frequently Asked Questions (FAQs)

Q1: What is a won-pegged stablecoin?A1: A won-pegged stablecoin is a type of cryptocurrency designed to maintain a stable value by being directly tied to the value of the South Korean won. This means one stablecoin would ideally always be worth one won.

Q2: Why is South Korea considering a consortium model for issuance?A2: The consortium model, involving both banks and fintech firms, aims to combine the stability and trust of traditional financial institutions with the innovation and technological expertise of fintech companies. This blend is crucial for a successful and widely adopted digital currency.

Q3: How would the new Financial Stability Council differ from the FSC?A3: The proposed Financial Stability Council would serve as a new, overarching economic and financial ‘control tower,’ potentially taking over stablecoin licensing from the existing Financial Services Commission (FSC). This suggests a more centralized and strategic regulatory approach to digital assets.

Q4: What are the main benefits of a South Korean stablecoin?A4: Key benefits include enhanced financial stability, fostering fintech innovation, boosting the global competitiveness of the Korean won, and expanding use cases for digital payments, leading to more efficient transactions.

Q5: What challenges might this initiative face?A5: Challenges could include developing complex regulatory frameworks, ensuring interoperability with existing financial systems, and successfully educating and encouraging public adoption of the new digital currency.

Source: CryptoSlate

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Liam Peterson

Oil prices climbed on Monday in early trade, trimming some of last week's losses, after OPEC+ agreed over the weekend to raise output at a slower pace from October on expectations of weaker global demand.

Brent crude gained 34 cents, or 0.5%, to $65.84 a barrel by 0047 GMT, while U.S. West Texas Intermediate crude rose 30 cents, or 0.5%, to $62.17 a barrel.

Both benchmarks fell more than 2% on Friday as a weak U.S. jobs report dimmed the outlook for energy demand. They lost more than 3% last week.

OPEC+, which includes the Organization of the Petroleum Exporting Countries plus Russia and other allies, agreed on Sunday to further raise oil production from October as its leader Saudi Arabia pushes to regain market share, while slowing the pace of increases compared with previous months.

OPEC+ has been increasing production since April after years of cuts to support the oil market, but the latest decision to further boost output came as a surprise amid a likely looming oil glut in the northern hemisphere winter months.

Eight members of OPEC+ will lift production from October by 137,000 barrels per day, far below the monthly increases of about 555,000 bpd for September and August and 411,000 bpd in July and June.

"The oil market rebounded slightly, supported by relief over OPEC+'s modest output hike and a technical bounce following last week's decline," said Toshitaka Tazawa, an analyst at Fujitomi Securities.

"Expectations of tighter supply from potential new U.S. sanctions on Russia are also lending support," he said, adding that downward pressure is likely to persist as OPEC+ continues to raise production and supplies ease.

Russia launched its largest air attack of the war on Ukraine, setting the main government building on fire in central Kyiv and killing at least four people, including an infant, Ukrainian officials said on Sunday.

U.S. President Donald Trump said on Sunday that individual European leaders would visit the United States on Monday and Tuesday to discuss how to resolve the Russia-Ukraine war.

Trump added that he was "not happy" about the status of the war, after reporters asked about the massive Russian air assault. But he again expressed confidence that the war would soon be settled.

The European Union is sticking to its plans to phase out Russian oil by 2028, the bloc's energy chief told Reuters on Friday, adding that he had not faced pressure from Washington to bring forward this deadline.