Yen Strengthens on Safe-Haven Demand

The Japanese yen traded near 157 per dollar on Thursday, hovering at its weakest level in nearly two weeks and down more than 1% so far this week ahead of lower house elections this weekend. PM Takaichi’s ruling LDP is expected to gain seats in the election as she seeks voter support for increased spending and other policy goals. Japanese bonds and the yen have faced pressure since Takaichi took office, with her push for expansionary fiscal policies raising concerns over Japan’s debt outlook. Investors are also looking ahead to Japan’s Q4 GDP report due next week, which is expected to rebound after a sharp contraction in the prior quarter. Meanwhile, Takaichi suggested last weekend that a weak yen could benefit exporters, later clarifying that her comments were meant to encourage an economy resilient to currency swings. The yen had rallied as much as 4.5% in late January amid speculation of a US-Japan joint currency intervention but has since given up more than half of those gains.

The Japanese yen depreciated past 156 per dollar on Wednesday, sliding for the fourth straight session to a near two-week low ahead of this weekend’s snap lower house election. Prime Minister Sanae Takaichi’s ruling LDP is expected to gain more seats in the national election as she seeks voter backing for increased spending, tax cuts and a new security strategy. Japanese bonds and the yen have come under pressure since Takaichi’s election as she pushes for expansionary fiscal policies, raising concerns about Japan’s fiscal outlook on fears of debt-funded spending. Takaichi also said over the weekend that a weak yen could be an opportunity for export industries, before walking back those comments, clarifying that her remarks were intended to promote an economy resilient to currency swings. The yen had rallied as much as 4.5% in late January on speculation of a US-Japan joint currency intervention but has since retraced more than half of those gains.

The Japanese yen traded around 155.5 per dollar on Tuesday after falling for two straight sessions, as robust US economic data and the nomination of a hawkish Federal Reserve chief supported the dollar. The yen also faced downward pressure after Prime Minister Sanae Takaichi over the weekend described a weak yen as a potential opportunity for export industries, signaling support for a softer currency. She later clarified that her remarks were intended to promote an economy resilient to currency swings, while Finance Minister Satsuki Katayama noted that the PM was simply citing standard economic principles regarding a weak currency’s impact. The yen’s decline also comes ahead of the Feb. 8 snap lower house election, where Takaichi’s ruling party is expected to gain seats and pursue expansionary fiscal policies. Japanese government bonds and the yen fell last month amid expectations of fiscal stimulus, with ongoing tax cut discussions likely to further pressure public finances.