The Japanese yen strengthened during Asian trading on Monday after Prime Minister Sanae Takaichi secured a decisive victory in Sunday’s national election, snapping a six-day losing streak as markets reassessed earlier bets that fiscal stimulus would weaken the currency.
After slipping as much as 0.3% earlier in the session to a two-week low, the yen reversed course and gained 0.4% to trade at 156.52 per dollar. The currency also recovered against several peers after earlier touching record lows versus the Swiss franc and hovering near its weakest level since the euro’s creation.
Despite the rebound, analysts cautioned that upside for the yen may remain limited. Sim Moh Siong, a currency strategist at OCBC in Singapore, said the broader outlook still suggests challenges for sustained yen strength, adding that concerns around potential government intervention could cap gains in the dollar-yen pair over the near term.
Japan’s top currency official Atsushi Mimura reinforced those concerns, stating that authorities are “closely watching currency movements with a high sense of urgency” following Takaichi’s sweeping electoral win.
Takaichi is projected to secure as many as 328 seats in the 465-seat lower house for her Liberal Democratic Party. Together with coalition partner Japan Innovation Party (Ishin), the bloc now commands a two-thirds supermajority, enabling it to override the upper chamber and accelerate policy implementation.
Shoki Omori, chief desk strategist for rates and FX at Mizuho in Tokyo, said the landslide result removes political uncertainty and strengthens policy execution, but shifts investor attention toward how fiscal policy is structured and communicated. He noted that risks linked to fiscal expansion had largely been priced in ahead of the election, leaving markets to assess whether those concerns will persist or fade.
David Chao, global market strategist for Asia-Pacific at Invesco, expects near-term volatility in the yen as markets digest the implications of a stronger LDP mandate. He said a more expansionary fiscal stance, including a potential consumption tax cut on food, is now more likely. While such measures could further strain Japan’s fiscal position, they may also fuel inflation and bring forward expectations for Bank of Japan interest rate hikes.
Elsewhere, the U.S. dollar index slipped 0.2% to 97.38 at the start of a data-heavy week that includes U.S. retail sales, inflation figures, and Wednesday’s delayed jobs report. The dollar also came under pressure after a Bloomberg report said China had urged banks to curb exposure to U.S. Treasuries.
Against the offshore Chinese yuan, the dollar eased 0.1% to 6.9259.
Markets are also weighing the likelihood of U.S. monetary easing later this year following signs of labor market strain. Futures markets are pricing an implied 17.9% probability of a 25-basis-point Federal Reserve rate cut at the March 18 policy meeting, according to CME Group data.
Sterling was little changed at $1.3619 amid political uncertainty in the United Kingdom following the resignation of Prime Minister Keir Starmer’s chief of staff. The Australian dollar rose 0.4% to $0.7039, while the New Zealand dollar edged 0.1% higher to $0.6025. The euro gained 0.3% to $1.1852.
In cryptocurrencies, Bitcoin slipped 0.2% to $70,537, while Ether declined 0.8% to $2,076.
