Analysis-A crisis of confidence in the yen looms over Japan PM Takaichi's election gamble

By Kevin Buckland and Rocky Swift

TOKYO, Jan 27 (Reuters) - The spectre of coordinated yen buying by Tokyo and Washington has propped up Japan's currency, but past suggests the interaction of an existent involution could beryllium limited, particularly due to the fact that Prime Minister Sanae Takaichi is basing her drawback predetermination run connected expanded stimulus measures.

With a ​vote for the little location of Parliament successful little than 2 weeks serving arsenic a mandate connected Takaichi's ngo to reflate the economy, Japanese authorities are openly hinting ‌at stepping into the markets for the archetypal clip since July 2024.

The yen's protracted diminution this twelvemonth has go a awesome of the market's escalating worries implicit Japan's fiscal health. Its relentless march little has travel arsenic Japanese authorities enslaved ‌yields person soared to grounds highs, which would ordinarily beryllium supportive of the currency.

"The currency is reacting aggressively," said Toshinobu Chiba, a Tokyo-based money manager astatine Simplex Asset Management, who believes the yen could spiral to arsenic anemic arsenic 180 per dollar for the archetypal clip since 1986, a twelvemonth aft the Plaza Accord allowed for a large depreciation of the dollar, if Takaichi scores a large predetermination triumph and has a caput to grow her stimulus plans.

Chiba, similar galore marketplace participants, expects dollar-yen levels beyond 160 to trigger an archetypal circular of intervention, "but there's not truthful overmuch interaction the Ministry of ⁠Finance tin person connected the market."

That's due to the fact that "most investors bash not spot ‌Japan's fiscal control," helium said. "It's a sovereign recognition issue."

Japan's authorities indebtedness already stands astatine astir 230% of gross home product, the highest successful the developed world.

Now Takaichi - on with her main governmental opponents - has pledged to suspend the depletion taxation connected nutrient - the root of astir 5 trillion yen ($32.36 billion) ‍in gross a twelvemonth - without saying however she volition marque up the shortfall.

Fears of a fiscal blowout came to a caput past week, with long-dated JGB yields vaulting to grounds highs, portion stocks suffered their astir terrible selloff successful 3 months - each portion the yen tested grounds troughs versus the euro and Swiss franc.

A "Sell Japan"-style marketplace rout that is self-reinforcing and spans plus classes is not thing Takaichi tin spend arsenic she ​heads into an election. So connected Friday, with traders offloading the yen contempt hawkish signals from the Bank of Japan, the currency abruptly spiked and past spiked again respective hours ‌later, successful what appeared to beryllium the effect of complaint checks from some the BOJ and the Federal Reserve Bank of New York.