FX.co ★ Yen Holds Gains After Two-Day Rally

The Japanese yen hovered near 154 per dollar on Wednesday, after gaining almost 2% over the previous two sessions. The move was driven by growing optimism that Prime Minister Sanae Takaichi’s policy agenda could bolster economic growth and give the Bank of Japan more room to raise interest rates. Following a decisive general election victory, Takaichi secured a firm mandate for increased fiscal spending and tax cuts, and reiterated her pledge to suspend the 8% sales tax on food for two years. So far, markets have largely accepted the view that these measures will not significantly deteriorate Japan’s fiscal position, fueling gains in Japanese equities and the yen, while helping to stabilize government bonds. The currency also drew support from speculation that Japanese authorities might intervene to rein in excessive selling in the foreign exchange market. Externally, the yen was underpinned by a weaker US dollar after soft US economic data strengthened expectations of interest rate cuts by the Federal Reserve.