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Takaichi election chatter to send USDJPY higher along with JGB yields

ADMIN || 12th January 2026

USD/JPY is likely to extend gains after it touched a one-year high Friday on a report Prime Minister Sanae Takaichi will call a snap election next month. Given her popularity, and her government’s aggressive fiscal stance, speculation about such a vote will also pressure JGB yields higher, as well as pushing currency traders to watch for any hints of intervention to restrain yen weakness. Any immediate response on Monday would come via Japan’s currency, seeing as bond and equity markets are closed for a holiday.

The ruling LDP’s junior coalition partner on Sunday said it stood ready to fight alongside Takaichi should an early election be called. Coming as they did after further reports over the weekend that the prime minister may move to dissolve the lower house of parliament Jan. 23, those comments further fueled speculation she will seek a stronger mandate given her high approval rating and the ruling party’s lack of parliamentary majority.

The ruling coalition LDP and partner Ishin combined controls half the seats in Japan’s lower house of parliament. With more than 2/3 of respondents in recent surveys supporting Takaichi’s administration, her party is expected to capture a greater number of seats in a new election.

Back in October, when Takaichi first took office, there was already speculation that her high popularity ratings would provide a spur for an election to win back a majority. Shortly afterward, her government unveiled the largest round of extra spending since the pandemic, weighing heavily on both the yen and JGBs. Investors will likely position for more fiscal stimulus and a fixed-income rout as the election speculation ramps up and even more so should it be confirmed.

The probability of a policy response rises if USD/JPY breaches 160, leaving traders wondering how far to chase the rally in dollar-yen. There may also be a reluctance to pile in to any yen gains though, given Takaichi’s preference for fiscalspending.

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