The Japanese yen is on track to record its largest weekly gain since November 2024, driven by market optimism that Prime Minister Sanae Takaichi's election victory will enable her to expand fiscal stimulus without undermining financial market confidence.
The yen has strengthened against the US dollar for four consecutive trading sessions, rising approximately 2.8% so far this week. A deepening sell-off in risk assets has bolstered demand for safe-haven currencies, providing additional support for the yen.
Japan's top currency official, Atsushi Mimura, stated that despite the yen's strength this week, the government remains highly vigilant regarding currency movements. Apprehension surrounding potential government intervention to prop up the yen has also limited its downside.
According to overnight index swaps, the probability of a Bank of Japan interest rate hike in April stands at around 78%. Investors will closely monitor a speech by Bank of Japan official Naoki Tamura on Friday, as well as upcoming US CPI data, for further clues on the interest rate differential between the US and Japan and the yen's trajectory.