The US dollar declined broadly during Wednesdays trading, especially against the Japanese yen and the Australian dollar, while the Japanese currency continued to outperform after Prime Minister Sanae Takaichis landslide election victory.

The dollar fell by 0.75% against the yen to 153.25, bringing its total losses to about 2.5% since last Fridays close, which came before Takaichis weekend victory.

The euro also dropped by 0.6% against the yen to 182.46, bringing its total decline to roughly 1.8% since the election.

Many analysts had expected the yen to weaken if Takaichi won, given her support for tax cuts despite Japans heavy debt burden. However, market moves ran counter to those expectations and began reinforcing themselves.

Lee Hardman, senior currency analyst at MUFG, said the yens failure to weaken despite Takaichi tightening her grip on power encouraged speculators to trim short yen positions in the near term.

Broader dollar weakness

The dollar lost further momentum against other major currencies, with the euro rising 0.16% to $1.1914, and the British pound gaining 0.3% to $1.3680.

The US currency also fell by 0.25% against the Swiss franc to 0.7659.

Pressure on the dollar followed data showing US retail sales slowed more than expected in December, alongside a separate report indicating slower growth in labor costs during the fourth quarter.

Upcoming jobs data

Markets are awaiting the January US jobs report, which was delayed from last week due to the brief government shutdown, as the next key test for the dollars weakness trend.

A Reuters survey showed nonfarm payrolls are expected to have increased by about 70,000 jobs last month, after a 50,000 gain in December. Any upside or downside surprise could shift Federal Reserve policy expectations.

Markets are currently pricing in about 60 basis points of rate cuts by December, despite signals from some policymakers that rates could remain unchanged for longer.

Australian dollar stands out

The Australian dollar was among the top gainers, breaking above $0.71 for the first time since February 2023, and was last up 0.4% at 0.7104.

Andrew Hauser, deputy governor of the Reserve Bank of Australia, said inflation remains too high and stressed that policymakers are committed to doing whatever is necessary to bring it under control.

Moh Siong Sim, currency strategist at OCBC, raised his year-end forecast for the Australian dollar to $0.73 from $0.69, noting that last weeks rate hike to 3.85% the first among G10 economies excluding Japan strengthens the case for further tightening.

Markets are pricing roughly a 70% probability of another rate hike to 4.10% at the May meeting, following first-quarter inflation data.

Other currency moves

The New Zealand dollar rose 0.2% to $0.6054, amid expectations that the Reserve Bank of New Zealand could also raise rates before year-end.

The Norwegian krone also outperformed after stronger-than-expected core inflation data led markets to rule out additional monetary easing.

The dollar fell 0.6% to 9.469 kroner, its lowest level since 2022, while the euro slipped 0.4% to 11.28 kroner, marking a ten-month low.