Takaichi’s Stimulus Ambitions Cloud Yen Outlook

Key Takeaways:

*The yen weakened as markets reacted to Prime Minister Takaichi’s pro-stimulus agenda, though speculation over a strong-yen finance minister limited losses.

*Japan’s exports rebounded 4.2% YoY, aided by a weak currency and stronger Chinese demand, but rising import costs highlight ongoing inflation pressures.

Market Summary: 

The Japanese Yen weakened slightly on Tuesday as markets digested Japan’s new political leadership and a mixed set of domestic economic signals. The election of Sanae Takaichi as Japan’s first female prime minister initially pressured the currency, with investors interpreting her campaign’s emphasis on fiscal expansion as a potential source of yen weakness. However, speculation that she may appoint Satsuki Katayama, a known advocate for a stronger yen as finance minister tempered some of the bearish momentum. The balance between fiscal stimulus and currency-conscious leadership has left markets uncertain about Japan’s near-term policy direction.

On the data front, Japan’s latest export figures surprised to the upside, rising 4.2% year-on-year in September and snapping a four-month slump. The rebound underscores how the yen’s depreciation has improved export competitiveness, particularly toward China and Southeast Asia. Yet, while the data points to an improving trade outlook, it also reflects the inflationary pressures created by a weaker currency, which has lifted import costs. This dynamic puts the Bank of Japan (BOJ) in a delicate position torn between supporting growth through accommodative policy and addressing the side effects of yen weakness on household purchasing power.

Meanwhile, the yen briefly gained support amid broader market volatility following a sharp decline in gold prices, which triggered a short-lived safe-haven bid. However, with global risk appetite stabilizing and U.S. yields remaining elevated, those inflows quickly faded. The broader narrative continues to favor carry trades, where investors borrow in yen to fund higher-yielding assets abroad reinforcing downward pressure on the currency. Unless risk sentiment deteriorates meaningfully or the BOJ signals a shift toward policy normalization, the yen’s recovery prospects remain limited in the short term.

Looking ahead, the yen’s trajectory will hinge on the interplay between domestic policy clarity and global macro trends. Should Prime Minister Takaichi prioritize stimulus while maintaining ultra-loose monetary settings, the yen could remain under sustained pressure against the U.S. dollar. Conversely, if Katayama’s appointment ushers in a more assertive stance on currency stability or if the BOJ hints at tightening amid improving economic data, short positions in the yen may start to unwind. For now, traders remain cautious, watching the early moves of Japan’s new administration and upcoming BOJ communications for clearer guidance on the next policy chapter.

Technical Analysis

GBPJPY, H4

GBP/JPY is showing early signs of stabilization after recovering from recent lows near 201.80, with price now oscillating between 202.30 and 203.40. This consolidation follows a period of sharp volatility and suggests the pair is seeking directional clarity amid competing short-term forces.

Momentum dynamics remain balanced. The Relative Strength Index (RSI) is holding near 53, reflecting neutral momentum, while the MACD is gradually flattening near the zero line after a mild bullish crossover suggesting that directional conviction is still building.

Overall, GBP/JPY appears to be in a consolidation phase within its broader uptrend. A synchronized breakout in both price and momentum indicators will be pivotal in confirming the next directional bias.

Resistance Levels: 203.40, 204.80

Support Levels: 201.80, 200.50