USD/JPY Takes on a “Political Market” Tone
— Assessing How Much the Dissolution / General Election Scenario Is Already Priced In
In the Tokyo market after the long holiday weekend, yen weakness has accelerated.
USD/JPY climbed to just below 159, marking its strongest dollar / weakest yen level since July 2024.
Yen crosses also surged across the board:
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EUR/JPY: moved into the 185 zone
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GBP/JPY: pushed toward the 214 area
◆ The Trigger: “Dissolution and General Election” Speculation
The main driver behind the weaker yen is growing speculation that Prime Minister Takaichi will dissolve the lower house and call a general election.
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Late last week (NY session): reported by Yomiuri Shimbun
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Today: Kyodo News followed up, reporting
“Prime Minister Takaichi has conveyed her intention to dissolve the House of Representatives.”
This immediately triggered the market narrative:
Political shift → faster fiscal expansion → JGB selling → weaker yen
That said, price action is beginning to stall just ahead of 159, suggesting some caution about crowded positioning.
◆ A Rare Combination: “Japan Selling” and “Equity Buying” at the Same Time
If the ruling party strengthens its grip under Takaichi’s high approval ratings:
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Aggressive fiscal policy becomes easier to implement
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Fears of expanding deficits → JGB selling
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→ “Japan selling” → weaker yen
At the same time:
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Expectations for economic stimulus
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Perceived political stability
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→ Buying of Japanese equities
In other words:
Bond selling (yen weakness) + stock buying (risk-on)
→ Both forces pushing the yen lower
This is a rare and powerful configuration.
◆ How to View the Psychological Level of 160
The key issue is that USD/JPY is now approaching the major psychological level of 160.
Finance Minister Katayama has reportedly:
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Repeatedly raised concerns with U.S. Treasury Secretary Bessent
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About the need to address excessive yen weakness
Therefore, the market is now watching closely:
Whether the U.S. side will issue any verbal warnings on FX.
This is the main risk factor from here.
◆ Main Event Ahead: U.S. CPI (December)
In overseas markets, the U.S. Consumer Price Index will be the biggest event.
Market expectations:
| Indicator | Forecast | Prior |
|---|---|---|
| CPI YoY | +2.7% | +2.7% |
| Core CPI YoY | +2.7% | +2.6% |
| CPI MoM | +0.3% | — |
| Core CPI MoM | +0.3% | — |
Headline inflation is expected to be unchanged,
while core inflation is seen slightly accelerating.
This report will decide whether inflation is re-igniting or continuing to cool,
and therefore set the direction for the USD.
◆ Other Economic Data
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Turkey: Current account (Nov)
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France: Fiscal balance (Nov)
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Canada: Building permits (Nov)
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U.S.: New home sales (Oct)
◆ Speeches & Events
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Holzmann, Governor of the Austrian central bank
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Bailey, Governor of the Bank of England
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Musalem, President of the St. Louis Fed
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Barkin, President of the Richmond Fed
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Himino, Deputy Governor of the BoJ (attending a BoE-hosted meeting)
Also in focus:
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U.S. 30-year Treasury auction (USD 22bn)
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Corporate earnings:
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BNY Mellon
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JPMorgan
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Delta Air Lines
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◆ London FX: Hesitation Just Below 159
Early in the London session:
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USD/JPY reached 158.97, marking the day’s high
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But traders remain cautious about a clean break above 159
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Nervous price action reflects heavy sell orders around the 159.00 area
🔎 Summary
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USD/JPY is now fully a politically driven market
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Election speculation is triggering both “Japan selling” and “Japanese equity buying”
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160 is the line between:
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Intervention risk
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And potential U.S. verbal pressure
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Tonight is a critical junction where:
Japanese politics × U.S. CPI × U.S. FX policy stance
all intersect.
