[SINGAPORE] The yen halted a four-day rally as investors' focus shifted to Japanese Prime Minister Shinzo Abe's plans for fiscal stimulus after the ruling party's victory in Sunday's upper house election.
Japan's currency weakened against all of its 31 major peers after Mr Abe repeated on Sunday night his pledge for action on a stimulus package, saying on public broadcaster NHK that "I want the swift formulation of comprehensive, bold economic measures," while declining to comment on the amount of such stimulus.
The Bank of Japan is set to announce an expansion of its monthly bond and equity purchases on July 29, and Mr Abe will probably introduce fiscal stimulus by year-end, according to Macquarie Bank Ltd.
"This is good news for anybody who's keen to get long dollar-yen ahead of the July 29 BOJ" meeting, said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie.
"Give it another three weeks and dollar-yen bulls' patience will be rewarded."
The yen fell 0.7 per cent to 101.21 per dollar at 1:53pm in Tokyo. It had strengthened 2 per cent in the four days through July 8. Against the euro, it dropped 0.7 per cent to 111.83.
While the yen will probably weaken toward 108 to 110 against the greenback on any additional BOJ easing, US dollar selling around those levels will push the Japanese currency back toward 105, Macquarie's Mr Berry said.
Mr Abe will order the compilation of a stimulus package on Tuesday, the Nikkei newspaper reported, without attribution. He will hold a cabinet meeting on economic measures to consider more than 10 trillion yen (S$133.22 billion) in stimulus, and the government is considering issuing new debt for the first time in four years, according to the report.
The supply of new government debt will allow the BOJ to ease more, Macquarie's Mr Berry said.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, advanced 0.1 per cent. Futures trading indicates the odds of a Federal Reserve rate hike by year-end rose to 21 per cent on Friday, from about 12 per cent a day earlier, after a report showed the US created 287,000 jobs in June, surpassing economists' expectations.
"The US dollar is only slightly firmer as interest-rate markets have only slightly firmed the chances of a Fed rate hike this year," said Imre Speizer, a market strategist at Westpac Banking Corp in Auckland.
"That still appears too light, so there's scope for further upside in both during the week ahead."
Bullish bets on the yen last week approached the record seen in April, a report from the Commodity Futures Trading Commission showed. The currency climbed to as high as 99.02 per US dollar for the first time since 2013 on June 24, in the immediate aftermath of the UK's vote to leave the European Union.