This week, markets will be watching events in Tokyo, with the parliamentary vote for the next premier set for Tuesday, October 21. The outcome could be pivotal for the USD/JPY when considering the potential influences on BoJ policy.
The LDP currently holds 196 seats, requiring 233 for a majority. A potential alliance with Ishin would take the number to 231, leaving the LDP needing just two more seats from smaller parties. An LDP-led coalition government could refuel expectations of a dovish BoJ rate path, driving another USD/JPY breakout.
Beyond the election, traders should closely monitor key economic data and Bank of Japan speeches.
With policy and politics driving USD/JPY trends, it could be a pivotal week that sets the stage for a choppy price outlook.
Japanese Exports in Focus amid BoJ Scrutiny
On Wednesday, October 22, Japanese trade data will provide insights into demand for Japanese goods. A rebound in imports and exports would suggest the drop in US tariffs on Japanese shipments to 15% could limit the impact on the economy.
The BoJ remains focused on the potential effect of US tariffs on demand, prices, and the labor market. Strong figures could raise expectations of a near-term BoJ rate hike. On the other hand, a continued fall in imports and exports may pressure the BoJ to delay rate hikes, weighing on the yen.
For context, imports and exports fell 0.5% and 0.1%, respectively, year-on-year in August.
On the daily chart, USD/JPY remains above the 50- and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias.
A break above 152 could pave the way to the October 10 high of 153.274. A sustained move through 153.274 may open the door to testing the February high of 155.880.
On the downside, a break below 150 could bring the 149.358 support level into play. If breached, the 50-day and 200-day EMAs and 147.5 would be the next key support levels.
