Japanese yen outlook: USD/JPY upside risks rise after Takaichi landslide

• Japan’s lower-house election delivers a supermajority
• USD/JPY risks tilt higher
• Yen intervention remains a threat
• US calendar adds two-way risk

Summary

Sanae Takaichi’s election landslide has shifted risks higher for USD/JPY, giving her a strong mandate that could see reflationary policy pushed further than markets had been expecting. But that upside comes with strings attached. Intervention risk remains very real if yen weakness accelerates, while a heavy US data calendar this week has the potential to inject sharp two-way volatility. The setup leans higher, but it’s not a one-way trade.

Supermajority secured

Japanese Prime Minister Sanae Takaichi has cruised to a decisive lower-house election win over the weekend, handing her coalition a two-thirds supermajority and one of the strongest electoral mandates Japan has seen in decades. It’s a big result for Takaichi, but not a shock. Polls heading into the vote consistently pointed to a clear win, with momentum firmly behind her and the Liberal Democratic Party.

A supermajority matters because it changes how policy gets made. With two-thirds of the lower house now held by the LDP based on exit polling, the government can override the upper chamber if needed, sharply reducing legislative roadblocks. That makes it easier to pass budgets and push through contentious reforms that would normally stall.

For markets, this is really about the mandate Takaichi has been delivered. The size of the win gives her far more room to lean into reflationist policy, potentially pushing further than markets had been pricing beforehand. That doesn’t mean policy is aimed at a weaker yen, but it does increase the risk that more aggressive fiscal settings test investor tolerance.

Reflation risk back in play

The charts below show how the JGB market has been trading into the election and why the result matters for curve dynamics. When Takaichi first called the election and proposed a two-year suspension of the food sales tax, longer-dated JGBs sold off sharply.

Source: TradingView

Yields surged at the long end, driving a clear bear steepening in the 2s10s and 2s30s curves as markets reacted to the fiscal signal. That move has since been largely reversed after the Bank of Japan flagged the potential to boost bond purchases, pulling yields lower and delivering a bull flattening.

Source: TradingView

While Takaichi’s tax proposal was less reflationary than some of her rivals’ policies, the scale of the win arguably gives her greater scope to push harder from here, raising the risk of a renewed bear steepening episode if markets reassess the fiscal outlook. Even with the BOJ backstop in place, that could pressure JGBs and the yen in the early part of the week.

The intervention overhang

Turning to intervention risk in the yen, Finance Minister Satsuki Katayama reminded markets over the weekend that authorities are watching FX moves closely and are prepared to act against disorderly yen weakness. That matters with USD/JPY now trading around similar levels to late January, when a series of rate checks triggered an abrupt, albeit short-lived, bout of yen strength.

The difference this time is the backdrop. Since US Treasury Secretary Scott Bessent explicitly ruled out bilateral efforts to support the yen, the currency has resumed weakening. Even if Japan still appears to have a US blessing to act unilaterally, the message to markets is that Tokyo is largely on its own.

That shifts the risk profile. Rate checks or outright intervention in response to renewed yen weakness early in the week may slow the move, but without a fundamental catalyst to back it up, any yen strength risks fading quickly, much like we saw in January.

Event risk stacked

Source: TradingView (US ET)

The US calendar this week is unusually heavy, and that matters for USD/JPY. Retail sales on Tuesday, payrolls on Wednesday and CPI on Friday would normally dominate separate weeks, but shutdown disruptions have compressed them into one. The result is a stacked run of event risk with little room for markets to reset in between.

Payrolls is the main event. Jobs growth and the unemployment rate are likely to do most of the work for US rates and the dollar. Recent Fed rhetoric suggests less concern about downside risks in the labour market, but that stance looks fragile and could shift quickly if the data disappoints.

CPI and retail sales are more straightforward. Softer outcomes would likely pressure the dollar, while stronger prints would support it. Treasury auctions of three, 10 and 30-year debt also matter, particularly if demand wobbles among offshore buyers. With a busy Federal Reserve speaker schedule, comments after the payrolls report may carry more weight than those before it, as officials react to the data rather than talk ahead of it.

Entering the week, futures are pricing around 54.5bp of easing from the Fed in 2026, or just over two full 25bp cuts, slightly more than at the start of February.

Source: TradingView

Japanese wage pressures in focus

The Japanese calendar is likely to be largely overridden by the election outcome, although wages data released on Monday still matters. It has the potential to shift expectations around the pace and timing of Bank of Japan rate hikes and, by extension, could influence USD/JPY. Beyond that, the domestic calendar shouldn’t trouble traders too much.

Source: TradingView (US ET)

One event to note is Friday’s speech from Naoki Tamura, widely seen as the most hawkish member of the BOJ board. Talk of further rate hikes would be expected, but if that tone is absent, the risk is renewed yen weakness as markets reassess the policy path.

 

Source: Bloomberg

As things stand, swaps are pricing around a 74% probability of a BOJ rate hike by late April following the conclusion of annual wage negotiations, with a move fully priced by June. By October, a second 25bp hike is fully priced, which would take the overnight policy rate to 1.25% if delivered.

USD/JPY upside bias, but with caveats

Source: TradingView

The technical picture has brightened further for USD/JPY bulls over the past week, intervention risk from the BOJ on behalf of the government aside. On the weekly chart on the right, a clear bullish engulfing candle has formed, pointing to the risk of further upside early in the trading week.

Above where USD/JPY closed the week, 157.50 is the immediate level to watch, having previously acted as support before the rate-check-induced plunge in late January. A foothold above that level would open a move back towards the 2026 YTD high at 159.45 and, beyond that, 160.23, where the BOJ was instructed to intervene back in 2024.

Momentum signals are starting to align with that view, with RSI (14) pushing above 50 and MACD crossing its signal line from below, sitting on the cusp of flipping positive. That combination points to directional risks skewing higher, which would normally favour buying dips and bullish breaks, albeit with intervention risk still hanging over the market.

If downside does emerge for any reason, 156.50 is the first level to watch, followed by 156.00 and then 154.45.