FOREX-Yen falls sharply ahead of elections, heads for fourth day of losses

By Stefano Rebaudo

Feb 4 (Reuters) - The yen tumbled on Wednesday, heading for its fourth straight daily loss ahead of elections expected to support Prime Minister Sanae Takaichi's push for more spending, tax cuts and a faster defence build‑up.

Meanwhile, the U.S. dollar was roughly unchanged against the euro and the pound as a possible delay in releasing key jobs data due to a partial government shutdown added to uncertainty over the U.S. Federal Reserve's policy path.

The yen JPY= was 0.68% lower at 156.80 per dollar on, its weakest since January 23, when the currency strengthened sharply from 159.23 amid speculation the New York Federal Reserve conducted rate checks. U.S. Treasury Secretary Scott Bessent denied last week that Washington was intervening to support the yen, arguing the U.S. has a strong dollar policy.

The yen has dropped more than 2% since January 30.

Strategists mentioned an Asahi Shimbun poll released at the weekend providing a strong indication that the ruling coalition government of the Liberal Democratic Party (LDP) and Japan Innovation Party are likely to build on their slim majority in the Lower House, and may even secure a two thirds majority, although that would be a bigger surprise.

Takaichi earlier this week triggered a yen selloff after a campaign speech in which she talked up the benefits of a weaker currency. While she later walked back those comments, worries linger that mixed signals from the prime minister could hurt efforts to support the frail currency.

"A positive result for the government in this weekend’s election could put them (Japanese authorities) in a more challenging position as the yen is likely to weaken at least initially putting more pressure on Japan to back up verbal intervention," said Lee Hardman, senior currency economist at MUFG, mentioning "a higher risk of direct intervention" if the Japanese currency moves back closer to the 160.00-level.

The Australian dollar AUD= was flat at $0.7020 after a sharp 1% rise in the previous session as the Reserve Bank of Australia hiked interest rates.

The yuan CNY=CFXS has been clocking steady gains, while analysts think authorities will resist further strengthening, risks are to the upside and could test China's fragile economy.

US DATA IN FOCUS

The dollar jumped against the euro and the yen last week after U.S. President Donald Trump chose former Fed governor Kevin Warsh to head the U.S. central bank when Jerome Powell's leadership term ends in May, easing concerns about an overly dovish Fed.

Warsh has argued that productivity gains from artificial intelligence could justify easier policy, while calling for a smaller Fed balance sheet in a mix that would steepen the yield curve but leaves the broader interest rate direction uncertain.

Trump late on Tuesday signed a spending deal into law that ended a partial U.S. government shutdown after four days, although crucial employment data that was due on Friday will be delayed.

"In this respect, labour market data in particular would have to be weak in order to reignite speculation about interest rate cuts and possibly put the dollar under downward pressure again, Warsh or no Warsh," Antje Praefcke, senior forex analyst at Commerzbank, said before arguing that the ADP index, due later in the session, is a poor indicator for the jobs report.

The dollar index =USD, which measures the greenback against six major currencies, was up 0.10% at 97.54. The greenback jumped 0.63% to 8.9690 SEK=D3 against the Swedish crown, which hit last week 8.747 the slowest level since November 2021.

STRONG EURO MIGHT AFFECT ECB PATH

The euro EUR= was 0.05% lower at $1.1811, ahead of the European Central Bank policy meeting due on Thursday, with investors keen on any comments about how the single currency's valuation might affect the policy path.

The euro hit a 4-1/2-year high at 1.2084 last week with policymakers flagging growing concerns over its quick appreciation, warning that it could drag inflation down even as price growth is already set to undershoot the ECB's 2% target.

ECB Vice President Luis de Guindos said last summer an exchange rate of 1.20 versus the dollar was acceptable, but levels beyond that could become more complicated.

Analysts said the euro/dollar has recently been driven almost entirely by sentiment over the greenback while interest rate differentials remained in the background.