Yen Strengthens as Intervention Risk Affects Market Following Takaichi’s Election Victory
By Gregor Hunter, Reuters — February 9, 2026
The Japanese yen reversed its downward trend and strengthened in Asian trading on Monday after Prime Minister Sanae Takaichi scored a decisive victory in Sunday’s election. This development abruptly ended the yen’s six-day losing streak, as market participants anticipated that expected fiscal stimulus under Takaichi’s leadership would bolster Japan’s stock market.
Yen Reverses Earlier Losses
Earlier in the day, the yen had declined by approximately 0.3%, touching its weakest level against the US dollar in two weeks. However, the currency rebounded and gained 0.4%, reaching 156.52 yen per dollar. The yen also retreated from losses against other currencies, including the Swiss franc, against which it had earlier hit a record low, and the euro, nearing the weakest point since the euro’s establishment.
Despite this short-term strengthening, currency strategists remain cautious about the yen’s outlook. Sim Moh Siong, a currency strategist at OCBC in Singapore, noted, “While the initial yen weakness may not have played out, the outlook for the yen is still one which is likely to struggle to strengthen.” He added that concerns about possible government intervention to stabilize the currency might be limiting further gains.
Government Vigilance on Yen Volatility
Following Takaichi’s coalition win, which secured a supermajority in the lower house of Japan’s Parliament, the government expressed heightened vigilance regarding currency fluctuations. Japan’s top currency diplomat Atsushi Mimura emphasized that the government is closely monitoring market movements “with a high sense of urgency.”
With the Liberal Democratic Party (LDP) expected to command up to 328 of the 465 lower house seats, alongside coalition partner the Japan Innovation Party, Takaichi now holds sufficient legislative power to override resistance in the upper house.
Market Implications of LDP’s Landslide Win
According to Shoki Omori, chief desk strategist for rates and FX at Mizuho in Tokyo, the LDP’s decisive victory removes political uncertainty and strengthens the government’s ability to execute policy swiftly. However, Omori highlighted that market focus has shifted toward how fiscal policy will be formulated and communicated under Takaichi’s expanded mandate.
“Risks from fiscal expansion had already been largely priced in before the election,” Omori explained. “The key question now is whether those risks are reinforced or gradually unwind.”
David Chao, global market strategist for Asia-Pacific at Invesco in Singapore, outlined expectations of near-term volatility as markets assess the new government’s fiscal strategy. He anticipates a more expansionary fiscal policy, including measures such as a consumption tax cut on food, which may be more likely under Takaichi’s leadership. While such policies could strain Japan’s fiscal position, they could also elevate inflationary pressures, potentially accelerating Bank of Japan interest rate hikes.
U.S. Dollar Faces Key Data Releases Amid Mixed Signals
The broader U.S. dollar index declined by 0.2% to 97.38 early Monday as the market awaits several crucial economic data releases this week, including retail sales and inflation figures, as well as a delayed jobs report scheduled for Wednesday.
Adding to dollar pressures, a Bloomberg report indicated that China has urged its banks to curb their exposure to U.S. Treasury securities, which subtly weighed on the dollar during Asia trading. Against the offshore Chinese yuan in Hong Kong, the dollar was 0.1% weaker at 6.9259 yuan.
Market watchers are also assessing the Federal Reserve’s policy outlook in light of signs pointing to labor market stress last week. Fed funds futures currently price an approximately 18% probability of a 25-basis-point rate cut at the Fed’s March meeting, slightly lower than last week’s odds.
Other Currency Movements
The British pound held steady at $1.3619 despite ongoing political turmoil involving Prime Minister Keir Starmer, whose chief of staff recently resigned amid controversy.
The Australian dollar gained 0.4% to $0.7039, while the New Zealand dollar rose 0.1% to $0.6025. Meanwhile, the euro registered a 0.3% uptick to $1.1852. In cryptocurrency markets, Bitcoin slipped 0.2% to $70,537.09, and Ether declined 0.8% to $2,076.37. —
Reporting by Gregor Stuart Hunter; Editing by Stephen Coates and Jacqueline Wong