Yen Weakens Sharply as Nikkei Surges on Takaichi’s Policy Outlook

Key Takeaways:

*Sanae Takaichi elected LDP leader, set to become Japan’s first female prime minister

*Takaichi favors aggressive fiscal and monetary expansion, pressuring yen

*Nikkei index rallies to record highs amid expectations of sustained policy support

Market Summary:

Japan’s political landscape underwent a historic shift over the weekend, as the Liberal Democratic Party elected Sanae Takaichi, 64, as its new leader, positioning her to become the nation’s first female prime minister. Takaichi’s victory over Agriculture Minister Shinjiro Koizumi in the runoff marks a decisive moment for Japanese politics, with markets quickly pricing in the implications of her economic agenda.

Known for her strong advocacy of fiscal stimulus and accommodative monetary policy, Takaichi was considered the most dovish candidate in the five-way leadership race. Her expected approach aligns with Japan’s long-standing reliance on ultra-loose policies to support growth, but diverges sharply from the hawkish stance of outgoing Prime Minister Shigeru Ishiba.

The yen weakened significantly following the announcement, sliding against major peers as traders anticipated further policy easing and possibly even coordinated rate cuts with the US Federal Reserve. Japan’s 10-year government bond yields also declined, reflecting expectations of an extended low-yield environment.

Conversely, equity markets welcomed the leadership outcome, with the Nikkei 225 rallying to a record high. Investors interpreted Takaichi’s expected policies as supportive of corporate profitability, particularly in export-driven sectors benefiting from a weaker yen. This rally underscores investor confidence that looser fiscal and monetary conditions will underpin economic recovery and market performance in the near term.

Looking ahead, the yen’s trajectory will likely remain under pressure as markets digest the implications of Japan’s new political direction. While equities stand to benefit, the risks for currency stability and longer-term fiscal sustainability are becoming increasingly pronounced. For now, investors remain positioned for further yen weakness and continued equity market strength under Takaichi’s leadership.

Technical Analysis 

USD/JPY, H4

USD/JPY surged aggressively, with bullish momentum driven primarily by fundamental catalysts. The MACD shows strong upward momentum, while the RSI remains in bullish territory, suggesting the potential for further gains.

The immediate resistance level is 150.00, a key psychological barrier. A breakout above this level would signal scope for further upside toward 151.20. However, given the sharp rally, a short-term retracement due to profit-taking or technical correction cannot be ruled out. In such a scenario, downside support lies at 148.75, followed by 146.60.

Resistance Levels: 150.00, 151.20

Support Levels: 148.75, 146.60

NIKKEI, Daily

Japan’s Nikkei index continues to rally, testing the record-high Fibonacci expansion level at 48,365.00. The move is supported by dovish monetary expectations from the Bank of Japan.

Technical signals remain bullish: the MACD shows rising upward momentum, while the RSI is elevated at 75, suggesting the potential for further gains. A breakout above 48,365.00 would open the path toward 52,935.00.

However, the rapid ascent raises the risk of profit-taking. If bullish momentum falters, the index could retrace toward 44,775.00, with further downside to 41,950.00 if selling pressure intensifies.

Resistance Levels: 48365.00, 52935.00
Support Levels: 44775.00, 41950.00