Yen Fluctuates After Three-Day Rally

The Japanese yen weakened past 153 per dollar on Monday, trimming last week’s gains after Japan’s fourth-quarter 2025 growth came in well below expectations. The economy expanded 0.1% QoQ in Q4, rebounding from a 0.7% contraction in Q3 but missing forecasts for a 0.4% increase. Consumer spending, the largest component of GDP, rose just 0.1%, highlighting subdued domestic demand as households continued to grapple with elevated inflation. Prime Minister Sanae Takaichi recently reaffirmed her commitment to supporting growth through proactive fiscal measures following her landslide victory in the Feb. 8 Lower House election. Meanwhile, the yen had rallied nearly 3% last week, marking its strongest weekly performance since November 2024, on expectations that Takaichi’s fiscal expansion plans could lift growth without placing undue strain on public finances. Bets on further rate hikes by the Bank of Japan and concerns over possible currency intervention also lent support to the currency.

The Japanese yen slipped past 153 per dollar on Friday but remained on track for its largest weekly gain since November 2024, supported by expectations that Prime Minister Sanae Takaichi’s fiscal expansion plans will boost growth without straining public finances. Takaichi’s decisive victory in the general election reduced political uncertainty and provided a clear mandate for increased spending and targeted tax cuts. Addressing market concerns over the proposed two-year sales tax cut on food, the Prime Minister emphasized that the measure will not be funded through additional bond issuance. Instead, her administration plans to rely on subsidies, special tax measures, and non-tax revenues to implement initiatives in a “sustainable” manner. The yen also drew support from verbal interventions, with top currency diplomat Atsushi Mimura noting that authorities remain on high alert over foreign exchange movements despite the currency’s recent rally.

The Japanese yen fluctuated around 153 per dollar on Thursday after rallying for three straight sessions, as investors assessed ongoing verbal interventions from Tokyo and the implications of PM Takaichi’s expansionary fiscal agenda for domestic growth. Top currency diplomat Atsushi Mimura said authorities remain on high alert over foreign exchange movements, even after the yen’s recent appreciation, particularly following stronger-than-expected US jobs data. Finance Minister Satsuki Katayama also reiterated that the government would respond to FX developments in line with the US-Japan joint statement. The yen had advanced roughly 2.5% over the previous three sessions after Takaichi’s decisive general election victory, which gave her a clear mandate to pursue higher fiscal spending and tax cuts. Markets are betting that her policy platform could reinforce economic growth and provide the Bank of Japan with greater scope to normalize monetary policy through higher interest rates.