Market News

(Bloomberg) -- The yen strengthened against the dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, moving away from a zone seen triggering intervention.

Japan’s currency gained as much as 0.6% to 156.22 per dollar after falling as much as 0.3% to 157.76. The LDP secured a two-thirds super majority in the 465-seat lower house by itself, according to public broadcaster NHK. The LDP’s haul of seats gives it the highest proportion of representatives in the lower house of any party in post-war elections in Japan.

“The LDP’s larger than expected victory prompted yen weakness in early trading, but profit-taking is leading to some yen strength,” said Motonari Sakai, chief manager of forex and financial products trading at Mitsubishi UFJ Trust & Banking. “There is lingering caution over possible intervention, which could cap the upside in dollar-yen.”

Concerns that Japan is spending beyond its means have increased pressure on the yen and the nation’s government bonds since Takaichi called a snap election last month and announced plans to temporarily cut the sales tax on food. Many investors see an election victory for Takaichi as allowing her to add to Japan’s already heavy debt load.

Japan’s chief currency official Atsushi Mimura said after the pro-stimulus premier’s decisive win that he’s watching markets with a high sense of urgency. Finance Minister Satsuki Katayama said that she was ready to communicate with the market on Monday if needed.

Traders will be watching the level of 159.45 per dollar reached in mid-January, the yen’s weakest since 2024. The slide to that area last month fueled speculation Japanese authorities might step in to support their currency.

Japanese officials have indicated they’re more concerned about volatility and the pace of currency moves rather than specific levels.

“Watch for rising verbal intervention as USD/JPY edges closer to 159,” Chidu Narayanan, chief Asia-Pacific strategist at Wells Fargo, said in a note to clients. “We see the risk of further USD/JPY upside near-term, with actual intervention likely closer to 162.”

The yen strengthened abruptly on Jan. 23 on reports of rate checks by the Federal Reserve Bank of New York. But the currency has since weakened after Bessent later said the US 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 recent decline.