The Japan snap election result was expected, with Takaichi and the ruling LDP party picking up a landslide victory. Takaichi has more than solidified her mandate and power positioning, with a ‘supermajority’ also being achieved.
That being said, the reaction in the Japanese yen currency hasn’t quite reflected that for now.
The yen is sitting higher in the past two days, with USD/JPY even down 0.4% to 155.30 currently. The drive lower in the past few sessions is largely tied to verbal intervention from Tokyo officials but also heightened risks of actual intervention. That especially since we’ve already seen ‘rate checks’ in the weeks before.
So, what’s next for the currency pair? Goldman Sachs offers their view, arguing for a continued push higher in USD/JPY. However, they also warn of the possibility that any move up might be short-lived as the Japanese finance ministry will feel more compelled to respond.
“The ruling coalition has reportedly achieved a “landslide” victory in Japan’s snap lower house election, clearly signaling wide support for the direction of the new administration, including its focus on greater fiscal spending. While some initial polls had flagged this possibility, we view this as slightly stronger than expectations.”
“We expect implied volatility to pick up again, with USD/JPY moving towards and through 160 as markets digest the full impact of the election results and the mandate for PM Sanae Takaichi. However, the move may be short-lived or even short-circuited if authorities push back through rate checks or actual intervention.”
They’re not alone with this call as ANZ is out offering the same outlook for USD/JPY after the snap election result:
“Markets are pricing in over 50 bps of BOJ rate hikes by the end of 2026. We think this is overdone, with April being the final 25 bps hike of the cycle in our view. Further inflation misses and cautious BOJ rhetoric may see this pricing reverse and likely drag the JPY lower.”
“Overall, we see USD/JPY continuing its march higher in the absence of any new US policy volatility. We continue to see risks of a move over 160 in the near-term.”
AloJapan.com