USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections

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The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday.

USD/JPY gains traction to near 157.45 in Monday’s early Asian session.
Japanese PM Takaichi’s ruling LDP won a snap election by a landslide.
The delayed release of the US employment report for January will take center stage later on Wednesday.

The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen (JPY) weakens against the US Dollar (USD) after Japan’s ruling Liberal Democratic Party (LDP) won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.

The coalition led by Takaichi’s LDP has won 352 of 465 seats in Japan's House of Representatives, figures collated by public broadcaster NHK suggest, with the LDP alone securing a majority of 316. Takaichi’s vow to accelerate talks on cutting the sales tax on food raises concerns over how Japan will pay for her plans to ramp up defense and other spending. This, in turn, exerts some selling pressure on the JPY and creates a tailwind for the pair.

On the other hand, intervention by Japanese authorities might help limit the Japanese Yen’s losses. Finance Minister Satsuki Katayama said on Sunday that she will communicate with markets on Monday if needed, following a historic election win for Takaichi. Katayama reiterated that she was keeping in close contact with US Treasury Secretary Scott Bessent to maintain stability in the pair movement.

Traders will closely monitor the delayed release of the US employment report for January, which is due on Wednesday. The US economy is expected to see 70,000 jobs added in January, while the Unemployment Rate is projected to remain unchanged at 4.4% during the same period.

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.