Markets are treating the February 8 election as a macroeconomic occasion, not only a political one. An enormous LDP win would doubtless be learn as a inexperienced gentle for Takaichi commerce reflation and financial activism, which might maintain JGB yields biased increased (extra issuance danger, increased time period premium, much less BoJ dominance over the curve). That blend is often yen-negative within the brief run, even when the return to regular story sounds wholesome over the long term.
The important thing stress is that this: Japan desires normalization (increased yields, increased wages, steadier inflation), but it surely doesn’t need USD/JPY sprinting into 160162 as a result of it worsens import inflation proper earlier than/after an election. So the bottom case turns into a two-handed regime: fiscal/curve stress pushing yields up, whereas Tokyo tries to easy FX through intervention/jawboning to sluggish the tempo relatively than reverse the pattern.
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