Japan’s currency markets reacted sharply following the historic election of Sanae Takaichi as the nation’s first female prime minister, highlighting the Takaichi impact on the yen. Traders quickly weighed the implications of her fiscal and monetary policy stance.
The yen dropped 0.25% to 151.35 per dollar after hitting 151.61, its weakest level since October 15. It also weakened against the euro and the British pound, reflecting investor caution. Analysts attributed the movement to expectations of muddied interest rate policies and potential fiscal expansion under the new government.
Takaichi’s government received strong backing from the right-wing Japan Innovation Party, or Ishin, bolstering confidence in her leadership. Market observers anticipated fiscal stimulus, though experts predicted it would remain moderate given challenges in policy execution. Hirofumi Suzuki, chief FX strategist at SMBC, said, “Markets are likely to avoid a sharp depreciation of the yen, with gentle downward pressure expected.”
Additionally, Takaichi plans to appoint Satsuki Katayama, a former regional revitalisation minister, as finance minister. In previous statements, Katayama expressed support for a stronger yen, potentially tempering excessive currency depreciation. Her appointment may influence investor expectations and the overall Takaichi impact on the market.
Monetary policy under Takaichi remains a central concern. Analysts noted that the Bank of Japan could face pressure to delay rate hikes while fiscal easing gains momentum. “The BOJ is caught between a rock and a hard place,” said Fred Neumann, HSBC chief Asia economist.
Meanwhile, global markets showed cautious optimism. The dollar index rose 0.2% to 98.787, supported by the weaker yen. Investors also reacted to positive U.S.-China trade signals and expectations of a swift resolution to the temporary U.S. federal government shutdown. The euro fell 0.15% to $1.1623 despite reduced political uncertainty in France.
The Takaichi impact is likely to continue shaping yen trends in the coming weeks as investors monitor fiscal policy announcements, cabinet appointments, and the BOJ’s response.
