US Dollar to Yen Today: JPY Rates Boosted by Poor Government Performance in Elections

July 21, 2025 - Written by Ben Hughes

STORY LINK US Dollar to Yen Today: JPY Rates Boosted by Poor Government Performance in Elections

The ruling government lost more power in weekend elections. Political uncertainty could curb the will to hike rates further. This should be a yen negative, but Monday’s session saw the yen gain nearly 1%.

Markets seem to be set for another week of the “summer doldrums,” which means slow, but bullish stock markets, and a lack of major catalysts. The ECB meeting on Thursday may liven things up, but since this is the last appearance ahead of the central bank’s summer holiday, it seems unlikely they will make any major moves and a “pause” in the cutting cycle looks the most likely course of action.

Data in the US is particularly quiet this week, with only PMIs of any consequence. Tariff headlines have died down and were quiet last week, but with the new trade deal deadline of August 1st approaching, there may be some renewed chatter. Earnings season continues with Tesla and Alphabet due to report on Wednesday.

EURUSD seems comfortable around the 1.16 level after the US dollar bounce from oversold levels in the first half of July. Whether this develops into a full reversal likely depends on what the Fed do into the end of the year. With CPI ticking higher, and unemployment at just 4.1%, there doesn’t seem any need for a rate cut, but political pressure and other data (PPI came in at 0% last week) suggests the Fed will cut 1-2 times into December.

Monday’s main story comes from some notable strength in the Japanese yen following the weekend’s Upper House election results. This has led to a 1% rally against the USD even though the political outlook has become more uncertain.

Yen Boosted by a Weaker Japanese Government

Prime Minister Shigeru Ishiba’s ruling coalition, comprising the Liberal Democratic Party (LDP) and Komeito, suffered a significant setback in the weekend elections, losing its majority in the upper house, mirroring its earlier defeat in the lower house in October 2024. Exit polls projected the coalition would secure only 41-43 seats, short of the 50 needed to maintain control, marking its worst performance since 1999. This outcome has intensified pressure on Ishiba, who has led a minority government since the LDP lost its lower house majority. Despite calls for his resignation, Ishiba vowed to remain in office to address pressing issues like rising consumer prices and U.S. tariff negotiations, with a critical deadline looming on August 1st.


The election saw a surge in support for right-wing populist parties, particularly Sanseito, which won 14 seats, up from one, with its “Japanese First” platform railing against immigration and gaining traction among younger voters frustrated by economic challenges like soaring rice prices.

The LDP’s weakened position may lead to legislative gridlock, complicating budget and trade deal approvals. It may also lead to a softer approach from the BoJ, who’s hiking cycle has come under fire. This has been the major driver behind the yen recovery, so the election results should be negative rather than a positive, making Monday’s rally somewhat odd. Here’s ING with some thoughts:

“Opposition parties might try to make political hay by pushing for looser fiscal policy to address the cost-of-living challenges in Japan, and this prospect had weighed on JGBs ahead of the election. This sounds yen negative. And there is also the risk that if PM Ishiba is pressed to step down, he could be replaced by someone like Sanae Takaichi, who wants the Bank of Japan to go slow with rate hikes. In other words, it is not clear that the yen should be rallying today. A clearer read may emerge tomorrow when Japanese financial markets reopen after the Marine Day public holiday.”

Bond yields have short higher in the last 12 months due to the BoJ’s relatively hawkish stance and this has supported the yen. However, it’s clearly not a straightforward situation and it may be a case that markets would now be more comfortable with a softer approach to hikes before something breaks.

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TAGS: Japanese Yen Forecasts