The USD/JPY pair surged to ¥151.60 on Tuesday — up 0.8% intraday — before easing back to around ¥151.00 as investors reacted to expectations of looser monetary policy under Japan’s new leadership.

The move followed Sanae Takaichi’s election as Japan’s first female prime minister, after winning the parliamentary vote. Her victory is widely seen as a signal of policy continuity, with markets anticipating the continuation of pro-growth and pro-stimulus measures.

Yen Weakens on Expectations of Extended Monetary Easing

The yen’s decline reflects growing market sentiment that Japan’s interest rates will remain low for an extended period, potentially widening the yield gap between Japan and the United States. This divergence continues to favor the U.S. dollar, keeping it well-supported against the yen.

Takaichi’s Economic Vision

A staunch conservative and a long-time ally of the late Shinzo Abe, Takaichi is known for her strong support of Abenomics — the policy mix centered on monetary easing, fiscal stimulus, and structural reforms aimed at revitalizing Japan’s economy.

In 2024, she openly criticized the Bank of Japan’s rate hikes, warning that tightening too soon could derail the nation’s fragile recovery. Her stance suggests that she will likely endorse continued economic stimulus, even if it results in a weaker yen, to strengthen domestic demand and boost industrial competitiveness.

Katayama Expected as Finance Minister

Takaichi is expected to appoint Satsuki Katayama as finance minister. Known as a fiscal conservative with pragmatic views, Katayama may pursue a balanced approach between maintaining yen stability and supporting government spending.

Analysts believe Katayama’s leadership could limit sharp currency fluctuations while facilitating funding for Takaichi’s expansive stimulus programs.

Bank of Japan’s Independent Stance

Despite the political shift, Bank of Japan Governor Kazuo Ueda emphasized that the central bank will continue to set interest rates independently, “without preconceptions.” This statement signals that BOJ policy decisions may not fully align with Takaichi’s pro-stimulus preferences.

Overall, markets view Takaichi’s rise as a sign of policy continuity and potential yen weakness, as Japan maintains a growth-first strategy amid global monetary tightening.