USD/JPY surges to nine-month highs near 153.00 on Takaichi Trade

• The Dollar has rallied more than 500 pips this week the reaching levels near 153.00.
• Market expectations that the new LDP leader might boost fiscal spending are bleeding the Yen.
• The US Dollar rallies across the board on a Japaneserisk-off markets with the FOMC Minutes on focus.
  

The US Dollar is going through a spectacular rally against a weak Japanese Yen this week. The pair has appreciated more than 500 pips since last week's closing, to reach its highest levels since late January, a few pips below 153.00.

A mix of Yen weakness following the unexpected victory of the fiscal-dove Sanae Takaichi in Japan's Liberal Democratic Party's elections and US Dollar strength in risk-averse markets has created the perfect storm for the Japanese Yen.

Takaichi's victory puts BoJ's tightening plans into question

The new LDP leader, and highly likely next prime minister, has not given any clear hint of her policies. However, her profile as a former assistant to PM Shinzo Abe has fueled speculation that she might revive Abenomics' playbook, increasing fiscal spending and hindering the BoJ's monetary tightening plans.

Etsuro Honda, one of Takaichi's closer advisors, observed on Monday that October might be too early for an interest rate hike, but he sounded open to a quarter-point raise in December, if the macroeconomic environment allows for it.

The US Dollar, on the other hand, is strengthening across the board. The combination of a political crisis in France, which is hammering the Euro, fiscal concerns in Japan, and the lack of progress in the US shutdown has crushed risk appetite, boosting demand for traditional safe havens, including the US Dollar.

The focus today is on the release of the minutes of the last Fed meeting, but they are unlikely to have a significant impact on the US Dollar. A rate cut in late October is practically a done deal for the market, and Fed officials remain divided about the path forward.