Fundamental Analysis

Ruling coalition’s landslide victory in the general election boosts expectations for political stability
 Nikkei surges sharply on political stability
 USD/JPY edges slightly stronger for the yen, avoiding extreme yen weakness

USD/JPY edges slightly stronger for the yen

The general election held over the weekend resulted in a landslide victory for the ruling coalition. The government increased its seat count by more than 100, marking a historic win and the largest victory in the postwar era. With such a strong majority, legislation is expected to pass smoothly, reinforcing expectations for a stable administration. As a result, a sense of relief has spread across financial markets.

Interestingly, despite the overwhelming victory of the Takaichi-led government, USD/JPY moved toward yen strength. This may reflect ongoing warnings about potential currency intervention, as well as expectations that plans for a consumption tax cut could be postponed.

USD/JPY failed to break to new highs and is trading around the 156 level. Japanese equities surged, with the Nikkei rising by more than 2,000 yen. While it remains difficult to determine the future direction of the yen, much will depend on government policy. At present, selling pressure appears dominant.

[USD/JPY / Daily Chart]

Expectations of a delay in consumption tax cuts

USD/JPY opened higher in early trading with a price gap, but selling pressure pushed the pair down to the lower 156 range. A lower shadow has formed, indicating strong buying on dips, yet upside momentum remains limited. Future movements will likely depend on monetary policy decisions. Expectations of policy rate hikes, combined with confidence in political stability, may be contributing to yen strength.

For those concerned about fiscal deterioration, expectations that consumption tax cuts may be delayed could also be supporting the yen.

From a technical perspective, the pair appears to have topped out. Short-term moving averages have fallen below medium- and long-term moving averages, suggesting a downward trend. Caution is warranted if USD/JPY falls below 156.

[USD/JPY / 1-Hour Chart]

Today’s Economic Indicators

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