Yen Extends Gains on Intervention Fears

The Japanese yen traded near 154 per dollar on Wednesday after rallying almost 2% over the past two sessions, supported by optimism that Prime Minister Sanae Takaichi’s policy agenda could strengthen economic growth and give the Bank of Japan greater scope to raise interest rates. Following a decisive general election victory, Takaichi secured a strong mandate for higher fiscal spending and tax cuts, while reiterating her pledge to suspend the 8% sales tax on food for two years. Markets have so far given her the benefit of the doubt that the measures will not materially worsen Japan’s fiscal position, triggering gains in Japanese equities and the yen, while stabilizing government bonds. The currency was also supported by concerns that Japanese authorities could step in to curb speculative selling in the foreign exchange market. Externally, the yen benefited from a softer dollar after weaker US economic data reinforced expectations for Federal Reserve rate cuts.

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.