The US dollar jumped above 102 against the Yen from 100 after Japanese Prime Minister Shinzo Abe called for a fresh round of fiscal stimulus as he declared victory after Sunday’s elections in Japan.
The stock market benefited from the news and the Nikkei 225 index jumped 4% after the announcement. Investors see the increased chances of more fiscal easing as an increased likelihood of stronger monetary easing from the Bank of Japan, which held steady so far this year even as many expected it to act more aggressively. This left investors disappointed and caused the Yen to appreciate significantly making it the strongest currency so far this year.
If the new expectations turn out to reality, then more heavy losses are likely for the Yen. The Japanese currency reached a 13 high versus the US Dollar at 125.85, in June 2015. Investors and certainly the policy makers at the Bank of Japan are hoping the new easing measures to be enough to drive the Yen to last year’s lows.