The Japanese Yen rose against major currencies after Sanae Takaichi won Japan’s general election, giving the Liberal Democratic Party a supermajority. Initially under pressure, the Yen gained strength when Japan’s Chief Cabinet Secretary expressed concern about extreme foreign exchange moves, and Atsushi Mimura announced plans to monitor the forex market closely. At the time of reporting, USD/JPY was around 156.50, down 0.5%, while EUR/JPY fell 0.2% to 185.20.
Crude Oil prices dropped, with West Texas Intermediate decreasing over 1% to $62.60. The US Dollar Index fell, hovering below 97.50, after a positive end to the previous week. US stock futures showed mixed results following a rally on Wall Street. EUR/USD rose above 1.1850 due to USD weakness, and GBP/USD remained steady around 1.3600. Gold increased nearly 4% last week and continued its climb, surpassing $5,000.
The value of the Japanese Yen depends on Japan’s economic health, Bank of Japan policies, bond yield differences, and overall market sentiment. As a safe-haven currency, the Yen usually rises during periods of market turmoil. Changes to Japan’s monetary policy, particularly after 2024, will affect the Yen’s strength in relation to other currencies, especially as the Bank of Japan shifts away from its ultra-loose policies.
Sanae Takaichi’s strong win signals a renewed commitment to address the Yen’s weakness. The comments from top officials indicate a serious effort to defend the 160 level for USD/JPY. With core inflation in Tokyo consistently above 2.5% in 2025, the Bank of Japan now seems ready to speed up policy normalization, making call options on the JPY an attractive hedge.
The long-standing carry trade has been tough on Yen bulls, facing a significant challenge now. The US-Japan 10-year yield spread, which was over 400 basis points in 2024, has narrowed to about 320 basis points. This smaller difference reduces the cost of holding long JPY positions, hinting that puts on the USD/JPY pair could bring substantial gains if this new political momentum continues.
Recent positive developments in US-Iran nuclear talks could negatively impact crude oil prices. A potential deal might increase supply in a market that shows signs of being well-supplied, as recent EIA data from January 2026 indicates a slight global surplus. Therefore, it would be wise to buy puts on WTI crude futures to prepare for a possible decline toward the low $50s.
Gold trading above $5,000 per ounce reflects the significant uncertainty experienced in 2025. Looking back, central banks added over 1,050 tonnes to their reserves in 2025, continuing a trend from previous years. However, with the US Dollar weakening and geopolitical tensions easing, this rally may be excessive. Selling out-of-the-money calls could be a smart move to take advantage of possible consolidation.
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