The yen is on track for its biggest weekly drop since October, as traders brace for a decisive victory by Japanese Prime Minister Sanae Takaichi's Liberal Democratic Party in this weekend's election.
Japan's currency has weakened for the past four trading days, and is approaching 157 against the dollar on Thursday morning. Investors are betting that a strong mandate will allow Takaichi to consolidate power and push expansive fiscal policies.
Hedge funds are reviving bets against the yen, positioning for renewed weakness into the pivotal vote. A further decline in the currency would bring it near levels where authorities last intervened in the market.
Photo Credit: Bloomberg
“Assuming a strong Takaichi majority on the February 8th election, a return to max risk premium would imply USDJPY at 160,” said Namik Immelbäck, chief strategist at Skandinaviska Enskilda Banken AB, in a note. “Should USDJPY have a sharp reaction and test 160 one can probably expect intervention, and conveniently Wednesday February 11th is a holiday in Japan which offers less liquid markets and an opportune moment to intervene.”
The yen strengthened last month on talk of rate checks by the Federal Reserve Bank of New York, but the currency has since retraced most of those gains after US Treasury Secretary Scott Bessent later said the United States is “absolutely not” intervening in the currency market. Takaichi's comment that a weak currency can be a major opportunity for export industries added to the yen's decline.
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