Speculation over snap polls and big spending plans weakens currency, pushing traders to brace for Tokyo’s next move
The Japanese yen slid to its weakest level in 18 months on Wednesday, heightening speculation that authorities in Tokyo may step in to support the currency as concerns grow over fiscal expansion and political uncertainty.
The yen weakened as much as 0.2 per cent to 159.45 per dollar, its lowest level since July 2024, before paring some losses following a verbal warning from Japan’s finance minister. The slide was compounded by weak demand at an auction of five-year Japanese government bonds, highlighting investor unease over the country’s fiscal outlook.
Market pressure has intensified amid growing speculation that Prime Minister Sanae Takaichi could call a snap election next month, a move that could pave the way for aggressive fiscal stimulus and higher public spending.
The currency has now lost around 3 per cent against the dollar in just two months, rekindling memories of Tokyo’s currency interventions in April and July 2024, when authorities stepped in after similar rapid declines.
“With dollar-yen nearing 160, traders are very much on alert,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets. “The focus is not only on the level but also on how quickly the yen is moving. Other yen crosses, such as euro-yen, are also surging to record highs.”
Japan’s Finance Minister Satsuki Katayama sought to steady markets by warning that officials would take “appropriate action against excessive foreign exchange moves without excluding any options,” briefly knocking the dollar down to around 158.87 yen before it edged back higher.
Meanwhile, the U.S. dollar held near a one-month high against major currencies after American inflation data came broadly in line with expectations, reinforcing bets that the Federal Reserve will keep interest rates on hold later this month—despite mounting political pressure from the White House to cut rates.
Markets are also watching a potential U.S. Supreme Court ruling on the legality of President Donald Trump’s emergency tariffs, which could inject fresh volatility into global currency and bond markets.
Against this backdrop, the euro traded flat near $1.1647, and sterling rose 0.2 per cent to $1.3448, while the offshore Chinese yuan held steady around 6.98 per dollar, following data showing China closed 2025 with a record trade surplus.
For now, traders say the yen’s trajectory will hinge on political developments at home and how long Tokyo is willing to tolerate further weakness before drawing a line in the sand.
End of Article
