Japanese yen at 158.91 per dollar…down to its lowest level in 18 months ↓

Drop on spreading speculation that the "Takaichi government may call an early general election"

"An early election would weaken the yen and Japanese government bonds"

The Japanese yen fell to its lowest level in 18 months since July 2024 against the dollar as speculation spread that Prime Minister Sanae Takaichi may call an early general election.

On the 13th (local time), the yen fell 0.5% to 158.91 per dollar. Japanese government bond yields also declined broadly. The yen hit record lows against the euro and the Swiss franc. Amid selling pressure on the yen, the dollar recouped the previous day’s losses, rising as high as 158.65 per dollar. The won/yen financial cross rate against the Korean won, which has been weak, also edged down to around 927.51 won per 100 yen on the day.

According to Reuters, an early Japanese general election is likely to be a positive factor for the so-called “Takaichi trade,” which stokes declines in bond prices and the yen. With Prime Minister Takaichi’s approval rating currently high, an early election could bolster support for the prime minister’s policies. Prime Minister Takaichi favors rate cuts to stimulate the economy, which would be a bearish factor for Japanese government bonds and the yen.

The yen also posted the weakest performance among Group of 10 (G10) currencies last year excluding the dollar, rising just 0.3% against the greenback. Some experts still expect the yen to weaken into the 160s per dollar or below through the end of 2026, citing the wide U.S.-Japan government bond yield gap, negative real interest rates, and persistent capital outflows.

On the day, Japanese government officials, including Finance Minister Satsuki Katayama, stepped up warnings over excessive and speculative moves in the foreign-exchange market. Katayama voiced concerns about yen weakness in a bilateral meeting with U.S. Treasury Secretary Scott Bessent in Washington.

The possibility of Japanese government intervention in the FX market is also back in focus. The Ministry of Finance last intervened on July 12, 2024, when the dollar-yen rate hit an intraday high of 159.45. It intervened three more times that year when the respective intraday highs were 161.76, 160.17, and 157.99. Japan’s Ministry of Finance is more concerned about volatility and the speed of moves than any specific exchange-rate level.

In Japan, the Ministry of Finance decides on FX intervention and the Bank of Japan executes it through a handful of commercial banks. The government typically sells dollars to lift the yen’s value in the spot market.

Meanwhile, the dollar index, after falling 0.25% overnight, held at 98.940, reflecting market unease. The euro inched up to $1.1665, while the dollar fell to 0.7972 against the safe-haven Swiss franc.

Kim Jung-a, contributing reporter kja@hankyung.com