FOREX-Yen strengthens after Japanese election, US dollar weakens

By Sophie Kiderlin and Chibuike Oguh

NEW YORK/LONDON, Feb 9 (Reuters) - The yen strengthened on Monday after Japanese Prime Minister Sanae Takaichi's election victory, reversing six consecutive days of losses, and the dollar fell against other major currencies following a report that Chinese regulators have advised financial institutions to curb their exposure to U.S. Treasury bonds.

The yen had initially pulled back slightly after Takaichi's win on Sunday, with the currency reaching its weakest in two weeks, but then strengthened as the trading day continued. The dollar was last around 0.97% lower against the yen at 155.70 JPY=.

"The move in Japan is certainly a contributing factor in the dollar being weaker," said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey. "Historically, or at least since last year, the Japan story has had more and more indirect implication on other markets or even other asset classes."

Japan's top currency diplomat Atsushi Mimura said earlier on Monday that the government is "closely watching currency movements with a high sense of urgency" after Takaichi's coalition swept to a historic election win.

The yen also retraced losses against other currencies, which earlier saw it reach its weakest level on record against the Swiss franc CHFJPY= and trade near the weakest point since the creation of the euro EURJPY=.

CHINESE YUAN RISES AGAINST DOLLAR

Among the factors weighing on the dollar has been the talk of big investors diversifying away from US markets. Bloomberg News reported that Chinese regulators have advised financial institutions to curb their U.S. Treasury exposure, sending the onshore yuan to a 33-month high against the U.S. dollar.

The dollar CNH= was last down 0.21% to 6.915 versus the offshore Chinese yuan, trading at its weakest level since May 2023.

Traders are weighing their bets on policy easing from the Federal Reserve later this year. Markets are also bracing for a potential shift in U.S. monetary policy stance following the nomination of Kevin Warsh to succeed Jerome Powell as Fed chair.

Fed funds futures were last pricing in an implied 17.8% probability of a 25-basis-point cut at the U.S. central bank's next two-day meeting on March 18, according to the CME Group's FedWatch tool.

The U.S. dollar index =USD, which measures the greenback's strength against a basket of six currencies, was down 0.7% at 96.88, at the start of a week in which there will be several key data releases out of Washington, including retail sales, inflation and Wednesday's delayed jobs report.

"I think the biggest story is still the unwind of this Warsh trade. The U.S. dollar was trending weaker up until the nomination was put out . . . The market was caught off guard because they thought the nomination of Warsh is rather hawkish," Epstein added.

The euro was last up 0.80% against the dollar at $1.19085, trading at its highest since January 30. =EUR=

The pound GBP= was last around 0.55% higher against the dollar at $1.36825 after trading flat against the greenback earlier in the day.

Bitcoin BTC= fell 1.88% to $69,346.39. Ethereum ETH= declined 1.81% to $2,055.43.