Yen Weakness Continues

USDJPY continues to climb higher ahead of the Bank of Japan meeting later this week. On the back of the political upset seen in the recent Japanese elections, the BOJ is expected to hold policy levels unchanged, despite recent warnings over renewed downside action in JPY. USDJPY has recovered 10% from the YTD lows printed in September. A hawkish shift in the market’s Fed outlook, along with renewed USD strength ahead of the US elections has drive steady demand in the pair with JPY weakening amidst an absence of BOJ tightening action since the July hike.

Political Uncertainty & BOJ

With the ruling LDP party losing its majority in the lower house for the first time since 2009, there is a higher degree of uncertainty around fiscal policy, likely to cause some concern for the BOJ. Ahead of the meeting this week, almost 90% of those polled by Reuters expect the BOJ to hold rates steady. The bigger question is what the recent political shock will mean for the BOJ’s tightening cycle and whether the bank will now have to rethink. If the bank refers to this uncertainty this week, along with keeping rates on hold, JPY is likely to sell off further. Additionally, a slew of key US data this week poses bullish USD risks on any upside surprises, particularly in Friday’s jobs data.

Technical Views

USDJPY

The rally in USDJPY has seen the market breaking back above the 152.02 level with price now fast approaching a test of the 154.74 level. With momentum studies bullish, focus is on a continued push higher here with only a move back below 152 likely to shift the near-term bull view.