TD Securities forecasts a big win for the LDP in Japan’s upcoming Lower House election, which is likely to lead to a stable political climate.
However, caution is advised because if USD/JPY goes over 160, there might be foreign exchange intervention. Additionally, lower trading volumes are expected around Japan’s holiday on February 11th, which could increase market volatility.
Market Insights and Projections
This article combines commercial insights and analysis from external experts. The FXStreet Insights Team is in charge of compiling these insights.
Other market observations include the RBI maintaining its interest rates and silver’s strong rebound due to safe-haven demand. Also, news about Amazon’s $200 billion investment guidance was noted, influencing stock values.
Currently relevant topics include election risks for the yen tied to USD/JPY and a correction on comments made by BoE’s Pill. The Pound Sterling has bounced back as the US dollar weakens, but it still faces weekly losses.
As we near the second week of February 2026, the yen market feels reminiscent of early 2025, where expectations for political stability after an election were mixed with strong speculation about currency intervention. With USD/JPY approaching multi-decade highs once again, previous lessons are crucial for making upcoming trading decisions.
Current Political and Economic Climate
Looking back, the Liberal Democratic Party did win the 2025 election as expected, but the promised stability has proven fragile. Currently, recent polls show approval ratings for the administration have fallen below 30%, raising doubts about its ability to enforce solid economic policies. This political uncertainty adds risks that were not as evident a year ago.
One key warning from last year was the 160 level for USD/JPY, a threshold that prompted major yen-buying interventions by the Ministry of Finance in April and May 2024. Now, with the currency pair trading just below this key number, traders need to account for a high chance of sudden government action. Reduced liquidity around holidays could intensify the effects of such movements.
For derivative traders, holding call options on USD/JPY may be risky without a hedge. The possibility of intervention poses a significant downside risk, making protective put options a wise choice to shield against a sharp decline. This strategy helps traders keep potential upside while limiting their maximum loss.
The main driver remains the large interest rate gap between the US and Japan, which is more significant now than in early 2025. With the Bank of Japan’s policy rate at just 0.1% and the US Federal Reserve around 5.25%, there is still a strong incentive to sell yen for dollars. This divergence in policy is the primary factor pushing the currency pair to levels that worry authorities.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
