The Japanese Yen has staged a surprising comeback, strengthening about 1% against the US Dollar in early February 2026 trading, bucking forecasts of weakness after Prime Minister Sanae Takaichi’s landslide election victory. USD/JPY tumbled from 157.65 post-election to around 155.50 by Tuesday’s Asian session, reversing a prior dollar streak.
This shift caught markets off guard. Traders had bet on Yen depreciation from Takaichi’s Liberal Democratic Party securing 316 lower-house seats, paving the way for fiscal stimulus like suspending the 8% food consumption tax. Instead, intervention signals flipped the script.
Intervention Threats Anchor Yen Strength
Japanese officials moved quickly to steady markets. Finance Minister Satsuki Katayama stated Sunday she would “communicate” with markets if needed, hinting at action against volatile moves. Currency diplomat Atsushi Mimura echoed urgency in monitoring USD/JPY.
These warnings curbed Yen shorts, forming a bearish engulfing pattern on USD/JPY charts. Unlike typical interventions that fade, verbal cues here limited speculation ahead of fiscal expansion.
Key factors supporting Yen:
- Political clarity: Takaichi’s mandate reduces uncertainty, boosting Nikkei 225 to 58,000 record highs.
- Policy ambiguity: Uncertainty over Bank of Japan normalization offsets stimulus risks.
- Technical reversal: Break from six-day dollar gains signals momentum shift.
Takaichi’s supermajority enables bold spending without upper-house hurdles, yet markets prioritize intervention fears over depreciation norms.
Beatrice Quinn adds:
“Intervention fears have decisively overridden fiscal stimulus bets, positioning USD/JPY for further tests below 155 amid US data risks—traders should eye long Yen setups but brace for whipsaws if Tokyo holds fire.”
Broader Forex Context
Yen gains align with US Dollar weakness from Chinese Treasury sell-off signals and dovish Fed bets under incoming Chair Kevin Warsh. Japanese equities hit highs, showing investor optimism despite expansion plans.
Market Impact and Outlook
This Yen rally challenges fiscal expansion tropes, emphasizing central bank resolve in forex. Traders face heightened volatility as US data like retail sales (Feb 10), nonfarm payrolls (Feb 11), and CPI (Feb 14) loom, potentially accelerating dollar slides. Expect sustained caution on Yen shorts until intervention risks fade.
About Author
