By Rae Wee
SINGAPORE, Jan 13 (Reuters) - The yen fell to its lowest in more than a year on Tuesday while the dollar held most of its losses as investors fretted about the Federal Reserve's independence after the Trump administration opened a criminal investigation into Chair Jerome Powell.
The yen was the main mover in Asia hours, as it slid to its weakest level since July 2024 at 158.925 per dollar.
That followed news from Kyodo that Japanese Prime Minister Sanae Takaichi had conveyed to a ruling party executive her intention to dissolve parliament's lower house at the outset of its regular session scheduled to start on January 23.
The Japanese currency had already been under pressure this week after Hirofumi Yoshimura, leader of the Japan Innovation Party, said on Sunday that Takaichi might call an early general election.
"Markets will probably price in a scenario where Takaichi's coalition will gain more seats in the powerful lower house, and therefore that will enhance her ability to further loosen fiscal policy and potentially monetary policy," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
"So that's the main reason why the yen is selling off right now, on the back of those speculations."
The yen sank to record lows against the euro and the Swiss franc, while also hitting its weakest level against the British pound since August 2008.
POWELL INVESTIGATION WORRIES INVESTORS
Investors were also still trying to come to grips with the Trump administration's probe of Powell, a move that drew condemnation from former Fed chiefs and marked a dramatic escalation in the U.S. president's campaign to pressure the central bank into cutting rates faster.
The market reaction has been to sell the dollar and U.S. Treasuries, while the unease also prompted some investors to seek safety in gold. However, the selloff was much more measured than the one that followed the announcement of President Donald Trump's sweeping tariffs last April.
"The episode was mild, with losses in both USD and USTs fractional, as markets probably believe this is an act of threat that will blow over," said Vishnu Varathan, Mizuho's head of macro research for Asia ex-Japan.
The euro was steady at $1.1663, having risen as much as 0.5% in the previous session, while sterling was up slightly at $1.3474, extending Monday's 0.47% gain.
The Swiss franc was a touch stronger at 0.7972 per dollar, while the dollar index was last up less than 0.1% at 98.95, having clocked its worst day in three weeks in the previous session.
"The picture for the dollar is somewhat mixed," said Sim Moh Siong, FX strategist at OCBC.
"In terms of what the Fed should do, the Fed should be more reluctant to cut rates, against data pointing to resilience of the economy... but there is also a question as to what the Fed would do eventually.
"If the political pressure on the Fed intensifies, the Fed may turn dovish and potentially cut rates much more than warranted by the economy."
While the Trump administration's latest move has done little to alter market expectations for two more Fed cuts this year, it raises questions about the central bank's autonomy, a bedrock of U.S. economic policy and a cornerstone of its financial system.
Fitch Ratings said on Monday it views the Fed's independence as a key supporting factor for its AA+ U.S. sovereign rating.
U.S. Treasury yields eased slightly on Tuesday from the previous session's gains, with the benchmark 10-year yield last at 4.1811%.
The two-year yield held near Monday's three-week high and stood at 3.5385%. [US/]
In other currencies, the Australian dollar was flat at $0.6710, while the New Zealand dollar rose 0.1% to $0.5778.
A private survey showed on Tuesday that Australia's consumer sentiment slipped in January as households wrestled with renewed rate jitters and an uncertain economic outlook.
Separately, a private think tank said New Zealand's business confidence in the fourth quarter improved and is now at its highest level since March 2014.
(Reporting by Rae Wee; Editing by Shri Navaratnam and Jamie Freed)
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