Yen Hits July 2024 Low on Election Speculation, Yield Gaps Continue to Pressure

The Japanese currency is facing renewed selling pressure as political uncertainty combines with structural economic headwinds. JPY declined 0.5% to reach 158.91 against the US Dollar, marking its weakest performance since July 2024, according to market analysts at ING.

Political Uncertainty Amplifies Selling Pressure

The weakening accelerated following speculation that Japanese Prime Minister Sanae Takaichi may initiate a snap election. This political development reignited selling flows that pushed the yen beyond January’s low of 158.87, raising fresh concerns about potential government intervention in the currency markets.

Structural Headwinds from Yield Differential

Beyond political noise, deeper structural issues continue to undermine the yen’s strength. The persistent and widening US-Japan yield gap remains a key driver of capital outflows. Combined with negative real interest rates in Japan, these factors create sustained depreciation pressure on the currency.

Next Resistance Levels and Intervention Watch

Market participants are closely monitoring the 160 USD/JPY threshold as a potential breakout level. Past episodes of sharp currency volatility have prompted Japanese officials to signal willingness to intervene, keeping intervention risk a notable concern for traders positioning in FX markets. The combination of domestic political uncertainty and yield-driven capital flows suggests continued pressure remains likely in the near term.