Yen Slips Despite Strong Economic Data

The Japanese yen strengthened toward 155 per dollar on Tuesday, rising for the second straight session, as renewed verbal intervention from Tokyo supported the currency in the wake of Prime Minister Sanae Takaichi’s landslide victory in Sunday’s general election. Markets are also giving Takaichi the benefit of the doubt as she promised that her stimulus plans will not strain the country's finances further. The ruling coalition secured a two-thirds supermajority in the lower house, giving Takaichi a solid mandate to push for increased spending and tax cuts. She reiterated her pledge to suspend the 8% sales tax on food for two years on Monday. The yen also benefited from capital inflows as Japanese equities surged to fresh all-time highs following the election, even as local bonds came under pressure amid concerns over the country’s fiscal outlook.

The Japanese yen strengthened to around 156.5 per dollar on Monday, rebounding from two-week lows after the ruling Liberal Democratic Party, led by Prime Minister Sanae Takaichi, secured a two-thirds supermajority in the lower house in a widely anticipated victory. Japanese officials also said they are closely monitoring the FX market, keeping traders on alert for possible intervention. The election result gives Takaichi a clear mandate from the snap election to pursue expansionary fiscal policies, a stance that could further pressure the yen and Japanese government bonds while potentially supporting equities. Takaichi’s coalition won 352 of the 465 seats in Japan’s House of Representatives, according to figures collated by public broadcaster NHK, with the LDP alone securing a majority of 316. The outcome reinforced expectations for looser fiscal policy and possible tax cuts, which have rattled Japanese financial markets in recent weeks amid concerns over Japan’s growing debt burden.

The Japanese yen steadied around 156.8 per dollar on Friday, but was still set to lose more than 1% for the week as investors prepared for this weekend’s lower house elections. The currency came under pressure amid expectations that Prime Minister Sanae Takaichi will win voter backing for increased spending and potential tax cuts, raising concerns over Japan’s fiscal outlook. Uncertainty over how the government would fund its ambitious plans and offset potential revenue losses weighed on markets. Investors are also awaiting Japan’s Q4 GDP report next week, which is expected to rebound after a sharp contraction in the previous quarter. Takaichi recently noted that a weak yen could benefit exporters, later clarifying that her comments aimed to promote 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 surrendered more than half of those gains.