By Saumya Vaishampayan and Carla Mozee, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar pulled lower Monday, falling against the yen following an election victory seen as empowering Japan’s prime minister to move forward with economic reforms in the world’s third largest economy.
The dollar USDJPY -0.93% fell below 100 Japanese yen, fetching ÂĄ99.45 in recent trade, down from ÂĄ100.60 on Friday.
The dollar-yen seemed to be leading the dollar’s move against other currencies in early U.S. trade Monday as it often does, said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
The ICE dollar index DXY -0.55% , which measures the greenback against six other major currencies including the yen, fell to 82.163 from 82.633 late Friday in North America.
Until the release of the next round of labor-market data, which the Federal Reserve tracks closely for gauging its ability to slow its monthly asset purchases, the dollar is likely to be swung around by positioning, said Cole.
“The timing of Fed tapering and timing of the first tightening has pulled [the dollar] back again from the extreme move that we’ve seen over the last month and a half,” he said. The ICE dollar index rose nearly 5% from its June 14 close of 80.67 to its July 9 close of 84.58, according to FactSet.
The WSJ Dollar index XX:BUXX -0.66% , which uses a slightly larger comparison basket, fell to 74.33 from 74.84.
Data released Monday showed existing-home sales fell 1.2% in June, adjusted for seasonality, to an annual rate of 5.08 million. Earlier, data showed the Chicago Fed’s national activity index became less negative in June.
In Japan, exit polls showed Japanese Prime Minister Shinzo Abe’s ruling Liberal Democratic Party on Sunday won a majority in the upper house election, as expected.
The result puts the LDP in control of both chambers of parliament and allows Abe to tackle structural reforms to revive lackluster economic activity and battle deflation under his plan, popularly known as “Abenomics.”
“The next six months are now crucial to see whether the much-needed reforms are implemented,” Kim Eng Securities director of sales trading Andrew Sullivan told clients Monday.
Reform issues that Abe may address include adjustments to a planned sales-tax increase, a reduction in Japan’s corporate tax-rate and easing of some regulations related to the labor market.
Abe was seen as the driving force behind the Bank of Japan’s aggressive monetary-stimulus plan, launched in April. The yen has lost about 8% of its value against the dollar since the plan was announced, and at one point, the dollar pushed to highs against the yen not seen in more than four years.
The Bank of Japan’s “aggressive monetary easing — no matter whether Abenomics ultimately succeeds or fails — should, in the coming quarters, provide a welcome cushion,” as likely stimulus tapering by the U.S. Federal Reserve will deliver a “stiff headwind” to leveraged economies in emerging economies in Asia, wrote HSBC co-head of Asian economic research Frederic Neumann in a report.
“The large [Association of Southeast Asian Nations] markets look set to benefit the most. It’s now up to Abe to make sure the local Japanese economy receives a lasting boosting as well,” said Neumann, referring to the 10-nation bloc which includes Thailand, Indonesia, Malaysia and others.
Meanwhile, the euro EURUSD +0.42% traded at $1.3201, up from $1.3139. Portugal’s president late Sunday backed the current coalition government of Prime Minister Pedro Passos Coelho. The support from President Anibal Cavaco Silva removed the threat of snap elections and associated hurdles to implementing unpopular austerity measures, reports said.
The British pound GBPUSD +0.62% also gained against the greenback, trading at $1.5369, versus $1.5268.
The Australian dollar AUDUSD +0.75% fetched 92.50 U.S. cents, stepping back from 91.76 U.S. cents late Friday. The Aussie on Friday traded above 92 cents after the People’s Bank of China said it would end some controls on lending interest rates. China is Australia’s biggest trading partner.
Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
