Japan signals possible yen intervention after ruling party landslide

Monday 09 - 08:50

By: Dakir Madiha

Japan signals possible yen intervention after ruling party landslide

Japan’s finance minister Satsuki Katayama said the government is prepared to intervene in currency markets if needed, signaling potential action to stem yen weakness following the ruling party’s decisive election victory. Speaking on Sunday, Katayama said authorities would seek dialogue with financial markets “on Monday in various forms” should conditions warrant it.

Her remarks came hours after Prime Minister Sanae Takaichi’s Liberal Democratic Party secured a historic supermajority in a snap lower house election, winning 316 of 465 seats. The result marks the party’s strongest showing since its founding in 1955 and has heightened market focus on the policy direction of Takaichi’s new mandate.

Analysts warned that the landslide could revive what is known as the “Takaichi trade,” typically associated with rising equities, a weaker yen, and falling bond prices. Market strategists had cautioned ahead of the vote that a commanding victory could push the dollar yen rate toward the closely watched 160 level, widely viewed by traders as a potential threshold for official intervention.

Economists say downward pressure on the yen could intensify as investors price in expansionary fiscal policies. The currency has already fallen about 6 percent against the dollar since Takaichi took office in October and has hit multi-year lows against major currencies including the euro and the Swiss franc.

Katayama said Japan remains in close coordination with the United States on currency volatility. Following talks in Washington in January with U.S. Treasury Secretary Scott Bessent, both sides voiced shared concerns about what they described as unilateral yen depreciation, raising the prospect of coordinated action if market swings persist.

The finance minister also cautioned against proposals to tap Japan’s roughly $1.16 trillion in foreign exchange reserves to fund Takaichi’s spending plans and tax cuts. She said the reserves are intended for currency operations and warned that using them for fiscal purposes could create complications without a carefully managed approach.

Bond markets have already shown signs of strain. Yields on 10-year Japanese government bonds have climbed to around 2.23 percent, while 40-year yields reached record levels above 4 percent in January after the prime minister announced the early election. Investors remain wary of the budgetary impact of Takaichi’s expansionary agenda, which includes a $135 billion stimulus package and proposed cuts to consumption taxes on food.