Yen falls as LDP names Takaichi, markets jitter amid coalition split

Japanese markets swung sharply last week as the yen plunged following the ruling Liberal Democratic Party’s election of Sanae Takaichi as party leader, and then partially recovered after Takaichi’s path to the premiership was clouded by a sudden split with long‑time coalition partner Komeito. The currency fell from about 147 to the dollar before Takaichi’s victory to a nadir above 153, while equity benchmarks rallied on expectations of looser fiscal and monetary policy and then slipped when coalition politics turned uncertain.

Traders quickly priced in the prospect of aggressive fiscal stimulus and looser central bank policy under Takaichi, a shift market participants called the Takaichi trade. That stance, combined with a wide interest rate gap between Japan and the United States of more than 3.5 percentage points, has been cited by economists as a primary driver of the yen’s weakness. In futures trading, the Nikkei 225 reversed earlier gains and was reported down more than 2 percent after Komeito said it would part ways with the LDP, while the yen moved back near the 152 per dollar area.

Analysts and central bankers’ markets have pointed to several interacting causes for the...