Yen Fluctuates Ahead of Japanese Election
The USD/JPY pair strengthened to around 155.85 in early Asian trading on Wednesday, as the yen weakened amid political uncertainty in Japan ahead of the snap lower house election on Sunday, February 8.
Markets expect volatility as investors assess the impact of Prime Minister Sanae Takaichi's fiscal policy. One of her most touted campaign promises was a plan to suspend the 8% consumption tax on food and beverages for two years—which has sparked concerns about financing and the deficit.
The tax issue is important because the market is concerned that if spending/stimulus increases without a clear source of funding, Japanese bond yields could rise and the yen could come under further pressure. Therefore, traders are inclined to "sell the yen first" while awaiting political direction after the election.
On the other hand, the market also remains wary of potential intervention. Japanese Finance Minister Satsuki Katayama stated that Japan will continue to coordinate with US authorities, as per the previous joint statement, and will respond if necessary. Concerns about intervention can usually support the yen in the short term and restrain USD/JPY's gains.
In the US, dollar sentiment was also helped by changing expectations for Federal Reserve policy. The Donald Trump administration has announced plans to nominate Kevin Warsh as the next Fed chairman—and the market believes the policy direction could lean toward slower interest rate cuts and a reduction in the balance sheet.
Meanwhile, the US data cloud remains thick due to the partial shutdown. The Bureau of Labor Statistics postponed the release of the January jobs report, originally scheduled for Friday, depriving market participants of a key compass for interpreting interest rate direction. The combination of the Japanese election, intervention concerns, and delayed US data makes USD/JPY vulnerable to rapid movements—and the 155.50 level is now an area of increasing concern for traders. (asd)
Source: Newsmaker.id
