The Japanese currency slid as much as 0.2% to 159.45 yen per dollar, its weakest against the dollar since July 2024

The yen dropped to its weakest level in a year-and-a-half on Wednesday, as investors considered the possibility of a snap election that could pave the way for fiscal stimulus while an auction of government debt received a cautious market response.

The Japanese currency slid as much as 0.2% to 159.45 yen per dollar, its weakest against the dollar since July 2024. A recovery from its lows faltered after an auction of five-year Japanese government bonds attracted slack demand. The currency was last trading flat at 159.215 yen per dollar.

The auction saw cautious bidding amid speculation about a possible lower house dissolution, concerns over fiscal expansion, and heightened volatility, said Shoki Omori, chief desk strategist for rates and FX at Mizuho in Tokyo. Investors demanded higher yields and avoided aggressively adding positions, Omori added.

The Yomiuri newspaper reported on Wednesday that Japanese Prime Minister Sanae Takaichi is considering snap lower house elections on February 8.

As the yen approaches 160 to the dollar, traders are on alert for possible intervention by Japanese authorities to defend the currency.

While verbal warnings remain the first line of defence, the absence of clear guidance on the timing, scale, or trigger for intervention is keeping the speculative pressure against the JPY elevated, analysts from DBS wrote.

Against the yuan trading offshore in Hong Kong, the U.S. dollar was flat at 6.9752 yuan after the release of trade data for December that showed world’s second-biggest economy closing the year with a record surplus of around $1.2 trillion.

The Australian dollar was last up 0.2% at $0.6698, while the New Zealand dollar jumped 0.2% at $0.5746.