Japan stays the course

USD/JPY

Key zone: 156.00 - 157.50

Buy: 157.50 (on strong positive fundamentals) ; target 159.00-159.50; StopLoss 156.80

Sell: 155.50 (on a pullback after retesting the 156.00 level) ; target 153.50; StopLoss 156.30

Japanese stocks surged after the decisive victory of Sanae Takaichi in the snap elections: the first female prime minister will lead the government with the largest parliamentary majority in decades.

Even the toughest opponents of the Liberal Democratic Party admitted that the election results exceeded all expectations. Investors interpreted this as a signal of stability and lower political risks.

• The Nikkei 225 index jumped by 5.7%, broke above the 57,000 level, and closed 4% higher.
• The Topix index also set a new record, exceeding 3,800 points (+2.7%).
• Shares of technology and engineering companies rose by more than 10%. For example, Advantest, a leader in semiconductor testing equipment, gained 11.5%.
• Shares of Mitsubishi Heavy Industries, seen as an indicator of Japan’s military spending, added almost 4%.

Large capital sees Takaichi’s program as having the potential for a “strong and prosperous Japan.” The current market rally reflects expectations of large-scale economic reforms and increased investment in technology sectors thanks to an unprecedented parliamentary majority.

Goldman Sachs analysts believe that Japan is outperforming the US by 10 percentage points in market performance, which should attract more foreign investment.

Another positive factor is that Takaichi has secured support from Trump, whom she plans to meet in March. No surprise: the Japanese prime minister promises a strategic approach to budget planning, focusing on AI development, semiconductor production, and the defense industry. Japan hopes for continued US support on security issues.

The prime minister also announced her intention to initiate debates on revising Japan’s 1947 Constitution, including its pacifist clauses. To amend the constitution, support from two-thirds of both houses of parliament and a nationwide referendum will be required.

Japan’s foreign exchange reserves, amounting to $1.4 trillion (most of which are held in US Treasuries), have come under close scrutiny, as Prime Minister Takaichi is seeking funding for a controversial plan to suspend the consumption tax following her electoral victory. Yields on 10-year Japanese government bonds rose slightly.

It is assumed that Takaichi’s victory could lead to a weakening of the yen to 160 per dollar due to plans to finance reforms. For now, the yen remains stable around 156.50, as the “new” government claims it will control excessive price fluctuations. Spot traders are waiting for the stock market to stabilize and are accumulating trading volumes in key zones.

So we act wisely and avoid unnecessary risks.

Profits to y’all!