Buying USDJPY in anticipation of ruling coalition winning elections

The USDJPY pair is trading near 157.00, reflecting a weaker yen ahead of Japan’s upcoming parliamentary elections on Sunday. Though it is the currency’s primary headwind for now, there are other factors as well. Earlier this week, investors were particularly concerned about fiscal policy proposals of the new Prime Minister, Sanae Takaichi. In her campaign statements, she spoke in favor of an anemic yen, believing it would stimulate exports.

These comments were partially softened later on, but market players remained alert. The ruling coalition is expected to cement its position by getting a mandate to push through plans to ramp up government spending and cut taxes. This strategy raises significant doubts regarding Japan’s debt sustainability and its clash with the central bank’s monetary policy tightening.

The regulator is now in quite a predicament, with two options to consider. First, it could cap the rise in government bond yields, risking a further collapse of the yen. Second, it could let the debt market get all wobbly. The Bank of Japan (BoJ) is unlikely to step in to back bonds, which puts the national currency in a tough spot.

On the other side, the US dollar has recently gained support from Kevin Warsh’s appointment as the next Federal Reserve (Fed) Chairman and related expectations of fewer rate cuts this year. Robust service sector data have also underpinned the greenback. However, a broader USD trend is unclear as inflation stubbornly sits above the Fed’s target level and the Trump administration openly challenges the regulator’s monetary path. The US President is a strong advocate for lower borrowing costs.

From a technical standpoint, a correction is visible on the chart following the pair’s surge to a local high at 156.969. This jump pushed the Chaikin Oscillator into positive territory from its January 27 low. At the same time, the Stochastic Indicator is now signaling the risk of a pullback as it enters the overbought zone (%K=84, %D=74).

Try out the following trading strategy:

Buy USDJPY on a short-term correction to 156.000. Place Take profit at 159.00. Set Stop loss at 154.600.

The forecast is valid from February 5 to February 12, 2026.