The Yen's Second Act

Setting the stage for the next play.

Two weeks ago, we addressed the pickup in chatter about Japan's political and fiscal situation via “Yentervention”. In it, we outlined why we felt an election would be called, that a majority would be won by PM Takaichi, and that a fiscally loose approach would be taken.

More specifically for the Yen, we said:

“Japanese officials have escalated their warnings, with Finance Minister Satsuki Katayama publicly stating that she and U.S. Treas Sec Scott Bessent share concerns about the yen’s one-way weakness. So we’ve had a tick in the box for verbal interventions, with these comments implicitly broadening the possibility of joint or at least coordinated action should disorderly conditions deepen.”

Since then, we have indeed seen a snap election called, with Takaichi laying out plans to cut taxes. We’ve noted the rumours of the Fed rate-checking NY spot traders last week, with USD/JPY down almost six big figures since our last note.

In such a fast-moving environment, we turn our focus now to the second act, laying out the likely direction for USD/JPY from here.