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, Reuters reported.

A resurgent yen 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 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 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), opens new tab 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 was down slightly at $1.1863, while sterling eased 0.1% to $1.3613.

The Australian dollar , 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.