TOKYO -- The impact of Japan's upcoming election is spreading into currency markets as overseas investors question what a strong showing by Tokyo Gov. Yuriko Koike's new national party might mean for the loose monetary policy that has kept the yen weak.
The Japanese currency softened beyond 113 to the dollar Wednesday after the release of a framework for a U.S. tax overhaul, but it quickly firmed up to the 112-yen range, where it has hovered since.
A dealer at a Japanese bank reported fielding a number of inquiries from abroad over the past few days about who Koike is. Weak showings by the parties in power in French and German elections this year have foreign investors wondering whether Japan's ruling Liberal Democratic Party might fall in next month's snap election.
The yen's weakness against the dollar has stemmed from the Bank of Japan's efforts to hold down interest rates, leaving a gap between Japanese and American rates. The central bank's loose monetary policy is generally seen overseas as part of Prime Minister Shinzo Abe's economic program.
If Koike's party gains enough momentum to pose a threat to Abe's government, this basis for the yen's weakness may come into question. But views are split over the potential implications of an opposition victory, as some apparently believe much-needed economic reform could proceed faster under Koike.
Until the election is over, "markets will probably be swayed by poll results," a dealer sighed Friday.