An opinion poll indicates that the ruling coalition is set to secure a strong victory in the upcoming election, which could support a weaker Yen. Additionally, comments from the Bank of Japan suggest a growing awareness of the need for timely rate hikes, although this is not enough to reverse the Yen's weakening trend, notes Lee Hardman, Senior Currency Analyst at MUFG

Yen reacts to political developments

"The yen initially weakened at the start of this week after a weekend opinion poll from the Asahi Shimbun revealed that the ruling LDP and Japan Innovation Party is on course to secure a landslide victory in the 8th February election, while the opposition Centrist Reform Alliance is projected to lose more than half of the seats it held before Prime Minister Sanae Takaichi dissolved the Lower House."

"The survey revealed that the ruling bloc could win more than 300 of the Lower Houses 465 seats, and even secure a two thirds majority. Such a margin would allow it to override the Upper House by repassing legislation rejected by the Upper House where it lacks a majority."

"At the same time, the summary from the BoJ’s latest policy meeting from 23rd January was released overnight indicating a growing awareness of the need to raise rates in a timely fashion as they monitor the impact of the weak yen on inflation. The number of times “a weak yen” and “foreign exchange” appeared in the summary doubled according to Bloomberg."

"One member stated “the depreciation of the yen and the rise in long-term interest rates largely reflect fundamentals, such as inflation expectations. In this situation, the only prescription from the monetary policy side is to raise the policy interest rate in a timely and appropriate manner”."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)