The landslide victory of Prime Minister Sanae Takaichi and her Liberal Democratic Party in this month’s snap election has eased pressure on the yen. Before the election, the currency looked set to reach 160 to the U.S. dollar, a level that would likely have triggered intervention in the foreign exchange market to stem that descent.
Political uncertainty, the high level of national debt and interest rate differentials among major currencies all contributed to that decline. The election, however, has reassured investors. Takaichi’s mandate and her vision promise stability and consistency in economic policymaking, with a focus on restoring growth. A stronger yen will help achieve those objectives.
A stable currency is key to a strong and stable economy. Historically, Japan has welcomed a weaker yen since that made its exports more competitive. As the country has moved more of its supply chains overseas, however, a weak yen has become a drag on growth since it raises the price of imports. This has squeezed households as well, as they have faced stagnant wages.
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