Dovish Fed View
USDJPY is turning sharply lower this week as the combination of hawkish BOJ expectations, dovish Fed expectations and political uncertainty in Japan weighs on sentiment. Fed easing expectations have become more entrenched over the last week with Friday’s NFP undershoot seen reinforcing the view that the Fed will cut this month and at least one further time ahead of year end. Traders will now be watching US inflation data this week with any fresh weakness likely to cement this outlook, putting further pressure on USD near-term.
Hawkish BOJ Expectations
In contrast to the dovish view the market has on the Fed, the BOJ is expected to hike rates further ahead of year end. While BOJ governor Ueda has been more tempered than other policymakers at the bank, there is a clear hawkish tone to the sentiment we’ve heard expressed by many members recently. Given the divergence between the Fed and BOJ, USDJPY is vulnerable to a deeper drop near-term.
Japanese Political Uncertainty
Finally, the upcoming LDP election in Japan following the resignation of Japanese PM Ishiba is also impacting markets. JPY was lower initially in response to the news, mainly linked to fears that fiscal dove Takaichi would take office. However, with the leadership race now seen more evenly split JPY is recovering and should improve further if a more neutral or hawkish candidate starts to gain in the race.
Technical Views
USDJPY
Price is now testing support at the 146.81 level and with momentum studies bearish, risks of a deeper drop lower are seen. The rising rend line off YTD lows will be the next support area for the pair ahead of the 144.32 level. Topside, bulls need to see price back above the 149.31 level to alleviate near-term risks.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.