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USD/JPY surges as election uncertainties resurface – ING

USD/JPY surges as election uncertainties resurface – ING

101 finance101 finance2026/01/14 09:57
By:101 finance

USD/JPY Surge Continues Amid Political Uncertainty

The upward momentum in the USD/JPY exchange rate shows little sign of slowing, as speculation grows over the possibility of early elections in Japan. This renewed political risk is prompting markets to re-examine how much currency weakness Japanese authorities will tolerate. Additionally, ongoing diplomatic strains between Japan and China are intensifying the situation, according to Francesco Pesole, a foreign exchange strategist at ING.

Currency Intervention Unlikely to Shift the Trend

“At the start of the week, we anticipated that the USD/JPY could climb as high as 160. Although concerns about potential intervention might cause the rally to lose steam near that level, it now appears increasingly probable that this threshold will be reached. In July 2024, Japanese officials allowed the pair to surpass 160, only stepping in when it nearly hit 162. Since the Bank of Japan has yet to act, it seems likely they will wait until the exchange rate exceeds 160 before intervening.”

“To put things in perspective, the initial intervention on July 11, 2024, resulted in a 1.8% drop in USD/JPY. At that time, CFTC data showed net non-commercial yen positions at -52% of open interest, whereas now they stand at a modest 3% net-long, despite spot market movements suggesting otherwise. The key question is whether foreign exchange intervention can truly spark a lasting recovery in the yen.”

“Historically, intervention alone rarely leads to a sustained reversal. Earlier in 2024, such actions temporarily eased upward pressure, but the subsequent decline in USD/JPY was entirely driven by a sharp, 50 basis point fall in US 2-year swap rates over the following month. That scenario seems unlikely at present, and with the possibility of snap elections looming, markets remain hesitant to anticipate any Bank of Japan rate hikes before summer.”

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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