USD/JPY Sets New 24-Year Highs, after Strong Election Showing from Japan’s Ruling Party

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USD/JPY Analysis

The governing Liberal Democratic Party (LDP) is projected to have won 63 seats, out of the 125 that were up for grabs, in Sunday's elections for Japan's Upper House, according to NHK (Japan Broadcasting Corporation). Its coalition partner Komeito, got 13, which gives them a comfortable majority. [1]

The strong election showing of LDP, just days after the assassination of its former leader Shinzo Abe, is seen as supportive for the stimulatory fiscal and monetary policies by the government and the central bank.

The Bank of Japan is in stark contrast with its major counterparts and the Fed in particular, as it remains committed to its expansionary policy, even after inflation having exceeded its 2% target. This differential has led to USD/JPY rally during the second quarter, extending its nearly 24-year highs today, as it takes another crack at 137.00.

The technical outlook has not changed much, as bulls have the May 1998 highs (139.29) in their eyesight, but will likely need fresh impetus to challenge it and bring 142.49 is the spotlight.

Despite breaking new ground again today, progress has been slow over the last few weeks and USD/JPY eases after the initial election boost, while US 10 Year Yields also show similar movement.

Pressure back to 135.00 would not be surprising, but we struggle to see at this stage what would lead to a deeper correction and a breach of the EMA200 (at around 133.70).

Trade the News: View our Economic Calendar

This week's economic calendar starts-off in a subdued manner, but markets will get another inflation update from the US on Wednesday, which can determine the pair's trajectory and will weigh on the Fed's next policy decision.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 04 Oct 2022 https://www3.nhk.or.jp/nhkworld/en/news/tags/112/

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