Japan’s financial markets went into turmoil Monday morning after Sanae Takaichi — a conservative politician known for her pro-stimulus stance — officially won the leadership of the Liberal Democratic Party (LDP), paving the way for her to become Japan’s first female Prime Minister. But it wasn’t the political milestone that shocked investors — it was the yen’s sharp plunge as USD/JPY skyrocketed past the key psychological level of 150.00.
Global investors quickly drew their conclusions: Takaichi’s victory signals more fiscal spending, less monetary tightening, and a lower probability that the Bank of Japan (BOJ) will raise interest rates anytime soon. The result? The U.S. dollar surged once again, while the yen tumbled to levels unseen since Japan’s last government intervention.
Takaichi and Japan’s “New Era of Easy Money”
As a fiscal dove, Takaichi has long advocated massive public spending to stimulate growth. However, this approach has reinforced market expectations that the BOJ will maintain ultra-low interest rates for an extended period. Recent data shows that the odds of a BOJ rate hike in October have fallen from over 60% to just around 22% following the election results — enough to reignite a fresh dollar rally against the yen.
Technical Outlook
The 100-week moving average near 149.65 remains a key support, while 150.00 stands as a psychological battleground between bulls and bears. If prices hold above 150.00, analysts see potential for an explosive move toward the 152–154 area, signaling the start of a medium-term rally. However, failure to sustain this level could trigger profit-taking, pulling USD/JPY back into the 148 range.
Markets Await Takaichi’s Next Move
While political euphoria dominates headlines, uncertainty remains over how Takaichi will steer Japan’s economy. Will she allow the BOJ more freedom to exit its ultra-loose policy, or double down on fiscal stimulus to safeguard growth? Amid global uncertainties — from geopolitical tensions to persistent U.S. inflation — the yen’s future path remains clouded.
Takaichi’s victory is more than a political shift; it’s a potential catalyst for a new wave of yen weakness. With market sentiment favoring the dollar and expectations for Japanese rate hikes fading, USD/JPY looks poised to extend its bullish trend.
But history offers a reminder: whenever the yen weakens too far, Japan’s intervention never comes too late. The question now is — how high will USD/JPY soar before Tokyo steps in?
Technically, the yen still faces downside risk, with potential USD/JPY upside targets in the 152–154 range.
Ade Yunus
Global Market Strategies