The yen strengthened nearly 0.4% to 153.80 per dollar, building on a 1% surge in the previous session. It also advanced against other major currencies. The euro slipped to 183.15 yen after falling 1.2% a day earlier, while sterling extended its decline, dropping 0.28% to 210.00 yen.
Trading volumes in Asia were relatively light, partly due to a public holiday in Japan. Even so, market participants pointed to political developments in Tokyo as a key driver of currency moves.
Analysts said Takaichi’s landslide victory has given her the political capital needed to pursue a more coherent fiscal agenda. Vishnu Varathan, Mizuho’s head of macro research for Asia ex-Japan, said the scale of the win reduces uncertainty surrounding Japanese government bonds (JGBs) and the yen.
“Such a sweeping victory hands the Takaichi regime better control over the JGB bearish and the yen bearish aspects of the so-called Takaichi trade,” Varathan said, adding that a clearer fiscal strategy could ease investor concerns about excessive stimulus.
Japanese government bonds and the yen have both rallied since the election outcome became clear. At the same time, foreign inflows into Japanese equities have increased, driven by expectations that stimulus measures could benefit consumers and corporations. Those inflows tend to support the yen by boosting demand for the currency.
Yusuke Miyairi, Nomura’s strategist for yen foreign exchange and rates, said dollar-yen could fall toward 150 if narrowing U.S.-Japan rate differentials reinforce perceptions that Takaichi’s administration will prioritize fiscal responsibility.
Australian Dollar Surges on Hawkish Signals
In the Asia-Pacific region, the Australian dollar stood out, rising above the $0.71 threshold for the first time since February 2023. It was last up 0.7% at $0.7124.
The move followed hawkish comments from a senior Australian central banker, who stressed that inflation remains too high and reaffirmed the Reserve Bank of Australia’s commitment to tightening policy if needed.
Market expectations for further rate hikes have strengthened. Investors are pricing in roughly a 70% chance that the RBA will lift rates to 4.10% at its May meeting, contingent on first-quarter inflation data.
Moh Siong Sim, a currency strategist at OCBC, said the firm had upgraded its year-end forecast for the Australian dollar to $0.73 from $0.69, noting that last week’s rate increase made the RBA the first G10 central bank outside Japan to resume tightening.
“That hawkish hike will put additional focus on whether the RBA would follow with more hikes down the road,” Sim said.
The New Zealand dollar also gained ground, rising 0.32% to $0.6063.
Dollar Slips Ahead of U.S. Payrolls
The U.S. dollar, meanwhile, drifted lower ahead of the release of January’s non-farm payrolls report, a key indicator for Federal Reserve policy. The euro rose 0.14% to $1.1912, while sterling added a similar margin to $1.3661. The dollar index fell 0.27% to 96.66.
Economists expect the U.S. economy to have added around 70,000 jobs in January, with the unemployment rate steady at 4.4%. Recent data have pointed to some softening in the world’s largest economy. Retail sales for December came in weaker than expected, and labor cost growth slowed unexpectedly in the fourth quarter.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the payrolls report would be crucial for shaping the Federal Open Market Committee’s policy outlook.
“We expect the run of below-consensus payrolls to continue and weigh on the USD,” she wrote in a note.
Adding to the cautious tone, White House economic adviser Kevin Hassett said earlier this week that job growth could moderate in the months ahead due to slower population growth and rising productivity.
Financial markets are currently pricing in around 60 basis points of Federal Reserve rate cuts by December, even as some policymakers have indicated they may keep rates on hold for an extended period.
With political developments in Japan, hawkish signals from Australia and uncertainty over the U.S. labor market all converging, currency markets appear set for heightened volatility in the sessions ahead.