As traders prepared for the snap elections on Sunday, markets expected Prime Minister Sanae Takaichi would extend her power and maintain a policy of reflation.
Analysts at MUFG say that the political background in Japan is “pressuring” the yen downward, while Benzinga cites Polymarket prices as a sign of near certainty about Takaichi’s future.
Market odds and expectations for the upcoming election
Benzinga reported that Polymarket traders assigned a 99% chance that Takaichi will be prime minister following the election.
On the market for governing parties, the Liberal Democratic Party has a 99% share, and the Japan Innovation Party 22%.
These probabilities imply a scenario that Benzinga refers to as a “Supermajority”, suggesting the LDP might not require a coalition partner.
This would allow Takaichi to “clearly” pursue her goals without having to engage in lengthy legislative negotiations.
Market signals for currency and bonds
MUFG Bank’s Lin Li and Michael Wan said USD/JPY “is drifting back towards 160 after its short correction to 152.”
Local reports that Takaichi’s coalition had won a majority in the lower house could lead to unrealistic expectations about government spending.
MUFG warned that these expectations could “fuel upward pressure on USD/JPY yields and JGB long-end yields”, citing concern over fiscal discipline if the markets expect larger stimulus.
Policy continuity, defense build-up
Benzinga reports that traders are expecting a continuation of an aggressive policy stance. This includes massive fiscal stimulus and a slower pace of Bank of Japan interest rate increases.
USD/JPY was near 157 before the election.
Benzinga reports that the Cabinet approved a defense budget of Y=9.04 billion ($58 billion), a new record, for the FY2026. This puts the focus on procurement.
Lockheed Martin and Northrop Grumman are US defense names, while Japanese companies include Mitsubishi Heavy Industries and Kawasaki Heavy Industries.
Background and International Relations
Benzinga reports also that US President Donald Trump endorsed Takaichi in Truth Social, and has plans to welcome her to the White House for a reception on March 19th.
This is an unusual intervention on the part of a US president in a G7 member’s elections.
Benzinga quotes some analysts who warn that a “triple-dip” could occur if the markets determine that government “Sanaenomics”, or stimulus, threatens fiscal stability.
Stocks and bonds may fall in tandem if the yen breaks through 160 against the US dollar.
The outcome of Sunday’s election will have a major impact on fiscal policy, Bank of Japan tightening and defence expenditure.
For the moment, MUFG’s assessment of a softer yen as well as the possibility of higher JGB yields on long-term notes highlights how currency and rate pricing are directly affected by political events.
The post Yen Slips As Markets Bet on Sanae Takaichi Win and Reflationary Policies may be updated as new developments unfold.
