Yen Slides Further Ahead of Snap Election

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.

The Japanese yen depreciated to around 155 per dollar on Monday, extending a sharp decline from the previous session after Prime Minister Sanae Takaichi said over the weekend that a weak yen could be a major opportunity for export industries, signaling support for a softer currency. She later clarified that her comments were aimed at promoting an economy resilient to currency fluctuations. The yen dropped about 1% against the dollar on Friday after US President Trump nominated Kevin Warsh to become the next Federal Reserve chairman, seen widely as the more hawkish choice. Traders also prepared for heightened volatility ahead of the Feb. 8 snap lower house election, where Takaichi’s ruling party is expected to gain seats and push for expansionary fiscal policies. Japanese government bonds and the yen came under pressure last month on expectations of fiscal stimulus, with tax cut talks likely to further strain government finances.