The USD/JPY currency pair saw a modest uptick, attracting buyers around the 157.45 mark during the early Asian trading session on Monday. This shift occurs amid a weakening of the Japanese Yen (JPY) against the US Dollar (USD), following Japan’s ruling Liberal Democratic Party (LDP) securing a commanding majority in the recent lower house election. The election victory has raised expectations for increased fiscal stimulus under Prime Minister Sanae Takaichi.
According to reports from public broadcaster NHK, Prime Minister Takaichi’s coalition has won 352 out of 465 seats in Japan’s House of Representatives, with the LDP itself claiming a majority of 316 seats. Takaichi’s commitment to expedite discussions around reducing the sales tax on food has sparked concerns regarding the financial implications of her proposed defense and expenditure plans, increasing selling pressure on the Japanese Yen and driving a favorable environment for the USD/JPY pair.
Despite this, the possibility of intervention by Japanese financial authorities may help to mitigate the Yen’s losses. Finance Minister Satsuki Katayama indicated on Sunday that she would engage with the markets on Monday if necessary, following the historic victory for Takaichi. She affirmed her ongoing communication with US Treasury Secretary Scott Bessent aimed at maintaining stability in the currency pair’s movements.
As traders digest the political developments, they are also bracing for the delayed release of the US employment report for January, set to be published on Wednesday. Economists anticipate that the US economy will gain around 70,000 jobs in January, while the unemployment rate is expected to hold steady at 4.4% during the same period.
The Japanese Yen is widely recognized as one of the most traded currencies globally. Its valuation is primarily influenced by the performance of the Japanese economy, particularly driven by the policies of the Bank of Japan (BoJ) and the contrasting yields between Japanese and US bonds, alongside trader sentiment.
The BoJ plays a crucial role in currency control, often directly intervening in foreign exchange markets, mostly to lower the Yen’s value. Historically, the BoJ has maintained an ultra-loose monetary policy from 2013 to 2024, contributing to the Yen’s depreciation against major currency peers due to a significant policy divergence from other leading central banks. However, recent steps toward gradually unwinding this policy have provided some support to the Yen.
Over the past decade, the persistence of the BoJ’s ultra-loose stance has resulted in a widening divergence in policies compared to other central banks, particularly the US Federal Reserve. This discrepancy has led to a growing gap in yields between 10-year US and Japanese bonds, providing an advantage to the US Dollar. The anticipated move by the BoJ in 2024 to progressively shift away from ultra-loose policies, paired with expected interest rate cuts by other major central banks, is expected to narrow this yield differential.
The Japanese Yen is often viewed as a safe-haven asset, attracting investors during times of market volatility. In periods of market stress, the stability associated with the Yen typically bolsters its value relative to more risky currencies.
