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The Japanese yen held onto solid gains on Wednesday, supported by a strong rally in Japan’s stock market and growing optimism over the country’s political outlook following Prime Minister Sanae Takaichi’s landslide election victory. Investors are increasingly betting that her decisive win gives her the political capital needed to pursue more fiscally responsible and coherent economic policies, which has helped lift both the yen and Japanese government bonds.
The yen rose 0.1% against the U.S. dollar to around 154.22, building on a sharp 1% gain from the previous session. It also strengthened broadly against other major currencies, with the euro trading near 183.60 yen after a steep fall earlier in the week, while the British pound slipped to about 210.17 yen. Although trading volumes in Asia were thinner due to a Japanese market holiday, sentiment toward the yen remained firm.
Analysts noted that Takaichi’s overwhelming victory reduces uncertainty around fiscal policy and weakens the so-called “Takaichi trade,” which previously weighed on the yen and bonds. With fewer political compromises required, markets see greater clarity around Japan’s fiscal direction. At the same time, foreign inflows into Japanese equities have increased demand for the yen, adding further support to the currency.
Some strategists believe the yen could strengthen further if narrowing interest rate differentials between the United States and Japan continue. Dollar/yen could potentially move toward the 150 level if investors become more convinced of Japan’s fiscal discipline under the new administration.
Meanwhile, the U.S. dollar struggled ahead of the closely watched U.S. non-farm payrolls report. Expectations are for modest job growth, following recent data that hinted at a cooling U.S. economy, including weaker retail sales and slower labor cost growth. The euro edged higher against the dollar, while sterling and commodity-linked currencies such as the Australian and New Zealand dollars also posted small gains.
Overall, currency markets remain highly sensitive to political developments in Japan and upcoming U.S. economic data, with the yen emerging as a key beneficiary of shifting investor expectations.
