USD/JPY slumps below 156.00 as Japanese Yen strengthens after Takaichi's landslide victory

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USD/JPY weakens to around 155.90 in Tuesday’s early Asian session.
The Japanese Yen recovers after Takaichi’s election victory.
Traders will keep an eye on the US Retail Sales data on Tuesday ahead of the delayed employment report.

The USD/JPY pair tumbles to near 155.90 during the early Asian session on Tuesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party (LDP) to a historic landslide win. Traders braced for key US economic data that could offer more clues on the Federal Reserve's (Fed) monetary policy.

Takaichi’s LDP secured a comprehensive victory in Sunday’s election. The LDP won 316 of the 465 seats in Japan’s lower house, the first time a single party has secured two-thirds of the chamber since the establishment of Japan’s parliament in 1947.

This headline, along with the verbal intervention from Japanese officials, provides some support to the JPY and creates a headwind for the pair. Japan’s top currency official, Atsushi Mimura, said the government remains on high alert as it monitors the foreign exchange (FX) market.

Fed Governor Stephen Miran said on Monday that a weaker USD isn’t much of an issue for the central bank right now. “I don't view it as something that sort of had material consequences for monetary policy thus far,” he said.

Traders await the release of the US Retail Sales data later on Tuesday for fresh impetus. On Wednesday, the attention will shift to the delayed employment report for January. Markets expect Nonfarm Payrolls (NFP) to increase by 70,000 in January, with the Unemployment Rate holding at 4.4%. Any signs of improvement in the US labour market could help limit the Greenback’s losses in the near term.

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.