Japan’s historic election sends the Nikkei to record highs, here’s what to watch on USD/JPY

Japan’s general election on 8 February 2026 delivered a result that few could’ve predicted in its sheer scale. Prime Minister Sanae Takaichi led the Liberal Democratic Party (LDP) to a historic supermajority, securing 316 of 465 seats in the lower house, the party’s largest victory in its postwar history. Markets wasted no time reacting. The Nikkei 225 (JAPAN) surged as much as 5% intraday on Monday to break through 57,000 for the first time ever, before closing up around 3.9%, while the Japanese yen came under renewed pressure as traders weighed the implications of Takaichi’s expansionary fiscal agenda. With the so-called “Takaichi trade” now in full swing, characterised by stronger equities, a weaker yen, and rising bond yields, let’s take a look at the key levels to watch on two of the most impacted instruments.

USD/JPY, key levels to watch

The yen has been one of the weakest major currencies throughout 2026, and Takaichi’s landslide win could add further fuel to the fire. Her mandate for aggressive fiscal spending, including a proposed food sales tax cut and increased defence investment, is broadly seen as yen-negative. However, Finance Minister Satsuki Katayama has warned that authorities are closely monitoring currency movements, keeping intervention risk alive near the critical 159-160 zone, a level where Tokyo previously stepped in back in 2024.

Looking at the 4-hour chart, Friday’s trading closed around 157, sitting inside the local short reload zone. Following the election results, Monday’s session opened with a sharp bearish move, and USD/JPY is now approaching the 155 support region. This level is particularly significant as it aligns with the 50% Fibonacci retracement of the latest upmove, making it a crucial area to monitor in the sessions ahead.

If USD/JPY finds support here, it could suggest that the sell-off was an overreaction to the election outcome, and we may see bulls stepping back in to push the pair higher. However, if this level fails to hold, it could open the door to a deeper correction towards the 150 handle in the coming weeks.

Nikkei 225 (JAPAN), levels to watch

The Nikkei 225 opened Monday’s session with a bang, blasting through the 55,000, 56,000, and 57,000 levels within minutes of the opening bell to hit an all-time high of 57,337. The index is now up over 12% year-to-date, outperforming both the S&P 500 and Nasdaq 100. Takaichi’s supermajority gives her the power to push through growth-friendly policies, and analysts expect proactive fiscal measures to continue supporting Japanese equities. That said, surging Japanese government bond (JGB) yields and concerns over Japan’s debt-to-GDP ratio, which stands above 230%, could introduce headwinds if the bond market volatility intensifies.

Looking at the 4-hour chart, we can see a powerful breakout into new all-time highs last week, followed by a strong gap to the upside on Monday’s market open. Bullish momentum appears firmly in control, but there’s a very clear support level sitting below at around 55,000, confluent with the long reload zone of the breakout move. Adding further significance to this region, both the 20 EMA and the 50 EMA are sitting in this area. If the move calms down and we see a pullback, this could potentially be where bulls step in ready to defend.

Trade Now

Trading involves risk.