USD/JPY faces a choppy session as the US-China trade tensions and Japanese politics collide.
Traders should closely monitor Tokyo as Sanae Takaichi faces an uphill battle to secure support for a majority coalition. The Liberal Democratic Party’s (LDP) long-standing coalition with Komeito ended abruptly on Friday, October 10, triggering immediate market volatility. USD/JPY soared to a daily high of 153.274 before tumbling to an October 10 low of 151.102 on the news.
The LDP leader has until October 20, her parliamentary confirmation deadline, to forge new alliances. Failure to form a majority government could reduce pressure on the BoJ to keep rates low, potentially enabling a rate hike. USD/JPY price volatility has heightened since her election win on Saturday, October 4.
Takaichi has reportedly held discussions with the Constitutional Democratic Party of Japan (CDPJ) and the Japan Innovation Party. However, the parties have yet to signal any willingness to join forces with a Takaichi-led LDP.
Fading chances of Takaichi becoming Japan’s first female prime minister could boost demand for the yen. Conversely, reports of the LDP leader gaining support from other parties to form a coalition government would likely weigh on the yen.
Outside of domestic politics, US-China trade developments could also influence USD/JPY price trends. An escalation in the trade war would likely boost demand for the yen as a safe-haven asset. However, signs of easing tensions could lift sentiment and appetite for the US dollar.
The USD/JPY pair retreated on Tuesday, October 14, in response to the US and China declaring port fees on cargo shipments.
On the other hand, calls to delay further monetary policy easing to tame inflation may send the pair toward the 50-day EMA. A sustained move above the 50-day EMA would bring the October 10 high of 153.274 into play.
USD/JPY Scenarios: BoJ Uncertainty, US Data, and Dovish Fed Bets
Bearish USD/JPY Scenario: hawkish BoJ rhetoric, LDP party fails to find coalition partners, or dovish Fed comments could push USD/JPY toward 150.
Bullish USD/JPY Scenario: dovish BoJ commentary, LDP forges new allies, or hawkish Fed rhetoric could send USD/JPY toward 153.274.
