Yen stabilizes, dollar slips as China seeks stimulus By Reuters

By Tom Westbrook

SINGAPORE (Reuters) – The yen’s rise steadied on Monday as Japan’s incoming prime minister signaled that monetary policy should remain accommodative, while the dollar slipped against commodity currencies supported by investor expectations of a recovery in China’s economy.

The Japanese yen jumped on Friday as Shigeru Ishiba, a former defense minister and critic of aggressive easing, won the leadership of the Liberal Democratic Party, which controls parliament and will vote him out.

The yen fell about 0.4 percent to 142.75 per dollar after rising 1.8 percent on Friday. Ishiba told public broadcaster NHK that from the government’s point of view, policy must remain accommodative in trend given current economic conditions.

Analysts said that was enough to stem the yen’s surge after his victory and that the likelihood of an early election in the coming months – which Ishiba hinted at on Sunday – could hurt the yen at least in the short term.

“Essentially an election takes the Bank of Japan out of the equation until December … a marginally negative yen,” said Ray Attrill, Head of Currency Strategy at National Australia Bank (OTC:).

Elsewhere, the euro was steady at $1.1172 and the pound traded at $1.3381, with markets watching Friday’s US jobs data as the next major data point that could guide the pace of interest rate cuts in US.

European inflation data on Tuesday and Chinese data due months later are also keenly awaited.

The Australian and New Zealand dollars traded near 2024 highs they hit on Friday as interest rate cuts and expectations of fiscal support in China raised hopes of an improvement in the slowing economy.

The Australian dollar rose 0.3% to $0.6920 after hitting a 20-month high of $0.6937 on Friday. The New Zealand dollar rose 0.3 percent to $0.6360 after hitting its highest level since December on Friday.

Last week, the US Federal Reserve’s favored measure of inflation showed inflation at a fairly favorable 2.2% for the 12 months to August, sending US yields and the dollar lower.

“The trend for next year is for the dollar to fall,” Commonwealth Bank of Australia (OTC:) strategist Joe Capurso said.

“Inflation is under control. Interest rates are falling and this is good for the global economic outlook, good for risk taking and good for commodity currencies like .

Beijing’s flurry of stimulus measures led to a rally last week, even as interest rates were low, as investors piled into Chinese stocks that posted their best week in a decade. The yuan breached the psychological 7 per dollar threshold in offshore trade on Friday and was last at 6.9761 ahead of the onshore open.