USD/JPY climbs to near 152.00 as Takaichi elected as Japan Prime Minister

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The USD/JPY pair attracts some buyers to six-day peaks near 151.90 during the early Asian session on Wednesday. The Japanese Yen (JPY) weakens against the US Dollar (USD) after dovish Sanae Takaichi was elected as Japan's Prime Minister.

USD/JPY jumps to around 151.90 in Wednesday’s early Asian session.
Sanae Takaichi has become Japan's first female prime minister.
Traders weigh the potential fallout from a US government shutdown.

Japan’s parliament on Tuesday elected ultraconservative Sanae Takaichi as the country’s first female prime minister. Takaichi vowed to strengthen the nation’s economy and defense capabilities and enhance relations with the US. Her victory came after the ruling Liberal Democratic Party (LDP) allied with the Japan Innovation Party and reportedly signed an agreement over the weekend to form a coalition government.

Takaichi's support for fiscal stimulus and looser monetary policy keeps traders on edge and complicates the Bank of Japan's (BoJ) path for rate hikes. The expectation that the Japanese central bank would further delay raising interest rates could weigh on the JPY and act as a tailwind for the cross in the near term.

The US government shutdown has entered its fourth week as the Senate on Monday failed for the 11th time to advance a House-passed measure to fund the government and end the ongoing shutdown. The 50-43 vote fell mostly along party lines. This marks the third-longest funding lapse in modern history.

Fears of a prolonged US federal shutdown and a delay in the release of US economic data, including the Nonfarm Payrolls (NFP), create uncertainty for financial markets and the Fed. This could prompt traders to raise bets on a rate cut, undermining the Greenback.

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.