FED: US TSY 9Y-11M NOTE AUCTION: HIGH YLD 4.217%; ALLOTMENT 24.68%

• RES 4: 112-31   High Dec 18 and key short-term resistance
• RES 3: 113-04   76.4% retracement of the Nov 25 - Jan 20 bear leg  
• RES 2: 112-22   High Jan 7
• RES 1: 112-16+ High Feb 6
• PRICE:‌‌ 112-03+  @ 16:59 GMT Feb 09
• SUP 1: 111-29/09 20-day EMA / Low Jan 20 and the bear trigger
• SUP 2: 111-00   Round number support
• SUP 3: 110-30+ 1.618 proj of the Oct 17 - Nov 5 - 25 price swing  
• SUP 4: 110-22+ 1.764 proj of the Oct 17 - Nov 5 - 25 price swing

A sharp rally in Treasuries Thursday resulted in a breach of the 20- and 50-day EMAs. Nonetheless, the fade off highs cements the bearish M/T condition - which suggests that the latest recovery is likely a correction. However, an extension higher would undermine the bear theme and open 112.-22, the Jan 7 high. For bears, a reversal lower would refocus attention on 111-09, the Jan 20 low and bear trigger.

In securinty the strongest-ever post-war result for the conservative Liberal Democratic Party (LDP) in the 8 Feb general election, PM Sanae Takaichi emerges from the campaign with the most significant mandate to bend Japan's political and economic direction to her will since her predecessor and mentor, the late Shinzo Abe, held office in the early/mid 2010s. The election was initially viewed as a gamble, with Takaichi an untested leader up against a potentially formidable opposition coalition that included the LDP's former allies, Komeito. 

• In the event, though, strong public support for Takichi personally, whose robust foreign policy stance and advocacy for fiscal stimulus measures saw approval ratings for her cabinet skyrocket, resulted in the LDP winning 316 seats alone. This crosses the two-thirds supermajority threshold that would enable the LDP to propose constitutional amendments and override votes in the House of Councillors. The Centrist Reform Alliance (CRA)'s lacklustre campaign and inability to motivate a largely older voter base (compared to the strong youth turnout for the LDP) saw the main opposition lose 123 seats, with a return of just 49 lawmakers.

Chart 1. 8 Feb General Election Result, Seats

Source: NHK, Ministry of Internal Affairs, MNI

Even though it is not required, Takaichi indicated she would reach out to the regionalist libertarian Japan Innovation Party (Ishin), the LDP's coalition partners prior to the election. Takaichi said, “On policy, I believe there is a high degree of affinity. If there is a willingness to work together, including through a coalition, I would very much like to pursue that.”

• Reports before the election suggested that the next Diet session, where Takaichi will formally be elected as PM, could start on 18 Feb. Cabinet appointments would be made at the same time, giving an indication of whether Ishin, which won 36 seats overall, a loss of two from 2024, will join the gov't or sit in opposition.
• The LDP commands a supermajority in the lower house, but is short of even a simple majority in the House of Councillors. While the supermajority will allow the LDP to overcome any rejections of legislation by the upper house, it will still find it difficult to pass constitutional amendments, given the two-thirds majority required in both chambers, and a successful public referendum
• FT: "Past LDP leaders have often raised the possibility of modifications, including granting the prime minister greater powers in a natural disaster or military crisis and lowering the barrier for making future amendments.  Most controversial have been proposals to change the constitution’s Article 9, which enshrines Japanese pacifism and states that “land, sea and air forces, as well as other war potential, will never be maintained”. Subsequent reinterpretations of that line have allowed the existence of Japan’s Self-Defense Forces, but a change to the constitution would give the military greater political and practical legitimacy. "