The Takaichi factor increases pressure

GBP/JPY

Key zone: 209.50- 211.00

Buy: 211.50 (on strong positive fundamentals); target 214.00; StopLoss 210.80

Sell: 209.00 (after retesting the 209.50 level) ; target 207.00-206.50; StopLoss 209.70

The USD/JPY pair has shown steady growth for a week now, despite the U.S. Dollar Index remaining near the 98 mark without a clear trend. This dynamic is explained by a combination of fundamental factors reinforcing one another.

The trigger for the yen’s weakening was a report published by the Japanese newspaper Mainichi, citing sources familiar with the situation. According to them, Prime Minister Sanae Takaichi, during a meeting with Bank of Japan Governor Kazuo Ueda on February 16, expressed doubts about the need for further interest rate hikes. Ueda publicly described the talks as a routine exchange of views, but insider information points to a tougher government stance.

Although the data is unofficial, the market took it seriously. Takaichi is considered a supporter of a course close to “Abenomics” — a strategy of stimulating the economy through large-scale government spending and accommodative monetary policy.

Reminder:

In early February, Sanae Takaichi strengthened her political position: the Liberal Democratic Party of Japan, which she leads, secured a constitutional majority in the lower house of parliament, winning 316 out of 465 seats.

The Cabinet has already begun preparations to reduce the consumer tax on food products from the current 8% to zero, despite potential annual budget losses of about ¥5 trillion.

Earlier, the Prime Minister approved a stimulus package totaling ¥21.3 trillion.

It is evident that implementing such a large-scale fiscal expansion requires support from the central bank in the form of maintaining accommodative financial conditions.

Therefore, market participants paid more attention to insider reports than to official comments. Macroeconomic indicators also reinforce doubts about the need for rate hikes at upcoming meetings — in March or April.

• Nationwide CPI fell in January to 1.5% versus 2.1% previously (forecast — 1.6%). This is the lowest level since 2022.
• Core CPI excluding fresh food declined to 2.0%, also marking the lowest level since March 2022.
• The index excluding food and energy slowed to 2.6%.
• Japan’s GDP in the fourth quarter increased by only 0.1% quarter-over-quarter versus expectations of 0.4%.
• On an annual basis, economic growth amounted to just 0.2%.

The reasons for the weak performance remain declining domestic demand, trade restrictions (including U.S. protectionist measures and tensions with China), and reduced government investment.

Such a macro backdrop increases pressure on the yen and supports USD/JPY growth.

Sentiment within Japan’s economic community remains mixed. For example, former Bank of Japan Governor Haruhiko Kuroda advocates rate hikes, warning that the new government’s fiscal stimulus could increase inflationary pressure.

Personnel appointments became an additional factor. Academics Toichiro Asada and Ayano Sato, known supporters of reflationary policy — low rates and active government spending — have been nominated to the Bank of Japan’s board. They view a weak yen as a tool for supporting the economy.

And what is the result?

If trading involves the yen, the rhetoric of government officials becomes critically important. Open government pressure in favor of low rates creates a negative medium-term backdrop for the national currency. At the same time, inflation risks remain but are temporarily moving to the background.

From a technical perspective, USD/JPY has broken above the key resistance level of 155.00 and consolidated above it. For now, verbal interventions from the U.S. limit speculative activity, but increased political pressure could open the path toward testing the critical 160 zone.

So we act wisely and avoid unnecessary risks.

Profits to y’all!