Japan Lower House Election Sparks Yen Sell-Pressure and Dollar-JPY to Two-WEEK High

The upcoming early lower house election is intensifying financial volatility, with hedge funds accelerating yen sell positions as political uncertainty spikes. As the race heats up, the USD/JPY rose to a two-week high in early March 2026, with implied volatility on the Nikkei 225 reaching 30.6%, the highest in a decade during an election period. Polls show Prime Minister Koike Isehiro’s support slipping from 75% to 63.6% and 67%, with some at 57%, amid growing skepticism of economic stimulus and concern over inflation. Koike’s threat to resign if her coalition does not secure a majority has heightened risk sentiment. Over $1 billion in USD/JPY put options were bought in early March, outpacing covered calls, as traders price in continued yen weakness and a potential突破 of 156-157. The yen has fallen roughly 15% since late October 2025, reaching an 18-month low, with expectations of further weakness as Fed policy outlooks remain key tailwinds for the dollar.