Nomura: LDP landslide increases short-term pressure for yen weakness; intervention red line remains at 160 level
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Sanae Takaichi’s landslide election victory, although her post-election stance has turned more moderate, the market may restart the “Takaichi Trade” and further sell off the yen. Once USD/JPY approaches the 160 mark, the risk of intervention by Japan’s Ministry of Finance will soar.
Today, USD/JPY briefly rose to 157.65 before quickly retreating, last reported at 156.5 at the time of publication.
According to Wind Trade Desk, Nomura Securities’ Global FX Strategy Team released a research report on February 9 focusing on the overwhelming victory of Japan’s Liberal Democratic Party in the House of Representatives election and its impact on the yen’s trend.
The Landslide Brings Policy Freedom, Yet Fiscal Position Turns Moderate
In the House of Representatives election on February 8, the Liberal Democratic Party independently secured over 310 seats, achieving a two-thirds majority and granting the Sanae Takaichi government the power to overturn upper house vetoes.
However, Takaichi’s post-election statement took an unexpectedly conservative turn. Nomura pointed out that during a TV interview, Takaichi emphasized a “responsible” rather than “aggressive” fiscal policy, was vague about her pledge to cut the food consumption tax, only said the “National Conference” discussion will be expedited, and gave no clear timetable.
The report notes:
“Takaichi stated that the government needs to clearly explain the meaning of ‘responsible’, help the public properly understand her fiscal policy, and emphasized the importance of a sustainable outlook for Japan’s finances.”
The “Takaichi Trade” May Resurge, 160 is the Intervention Alert Line
Despite Takaichi’s cautious attitude, Nomura believes the market may still restart the “Takaichi trade”—that is, further yen-selling. The report clearly states:
“The LDP’s overwhelming victory may strengthen recent weak-yen pressure, but should USD/JPY approach 160, the Ministry of Finance will be more vigilant and may actually intervene.”
Finance Minister Katayama has stated that “Stable USD/JPY fluctuations are the shared responsibility of US and Japanese finance ministers,” and maintains close contact with the US. The 160 mark is obviously the tolerance limit for authorities.
BOJ Personnel is a Covert Pressure Channel
Nomura expects Takaichi will not openly pressure BOJ’s monetary policy, but the March and June reappointments of two policy board members will be a key observation window. If the new appointees are more dovish than current members Noguchi and Nakagawa, the market may interpret this as implicit government pressure on the BOJ, further weakening the yen.
The report also mentions that Takaichi will visit the US for a summit with Trump on March 19, with the first projects under the US-Japan $550 billion investment plan expected to be announced before then.
But Nomura believes these projects will mainly be funded through yen-USD swaps or foreign currency bonds, with limited effect on the spot FX market. Investors should find balance between short-term political dynamics and long-term intervention thresholds.
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