GBP/JPY retreats to 212.60 area as Takaichi’s win boosts the Yen

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The Pound retraces previous gains as a landslide victory by Japan’s Prime Minister Sanae Takaichi onSunday’s elections has sent the Yen rallying against its main peers on Monday. The GBP/JPY has given away nearly 200 pips from session highs at 214.41 to 212.61 at the time of writing.

GBP/JPY dives from 214.40 highs to levels near 212.60 on Monday.
The Yen rallied across the board following Takaichi's landslide victory.
A political scandal in the UK is keeping the Pound under pressure.

Prime Minister Takaichi has drawn support from her growing popularity to secure the Liberal Democratic Party’s largest win in its history. The LDP obtained 316 of the Lower House’s 465 seats on Sunday's election, a result that paves the path to extend Takaichi's tax cuts and economic stimulus policies.

The prospects of a strong government have soothed the market, which has reacted by scaling down Yen short positions. The Yen, however, has a bumpy road to a sustained recovery, as Takaichi’s policies will sooner or later face the reality of the country’s fiscal strains.

Yen intervention looming

Japan’s top currency diplomat Atsushi Mimura has provided further support to the Yen, warning that the government is watching currency movements with ”a high sense of urgency”, meaning that Tokyo authorities are ready to intervene at any moment.

In the UK, in the absence of key data releases, a new government crisis is weighing on the Pound. The Downing Street Chief of Staff, Morgan McSweeney, has resigned, taking responsibility for advising Prime Minister Keir Starmer in the appointment of Jeffrey Epstein-linked Peter Mandelson as US ambassador.

The scandal has undermined an already damaged credibility of the Labour Cabinet, which will not be restored with McSweeney’s departure. A criminal investigation into alleged leaks of government information by Mandelson might add pressure on Starmer, increasing political uncertainty, which would have a negative impact on the Pound.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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