At the time of writing, the USD/JPY pair is at 143.47, having peaked at 146.56 on September 27, after falling to 139.54 on September 16.
The pair is experiencing a recovery after new Japanese Prime Minister Shigeru Ishiba offered dovish comments regarding his economic plans.
Political context for USD/JPY
To begin to understand the outlook for the Japanese yen, it is worth highlighting Shigeru Ishiba’s victory against his right-wing rival Sanae Takaichi:
The new prime minister comes to office with a popularity of 52% and does not represent drastic changes for Japanese monetary policies, which was initially taken positively by the markets. Since analysts were betting on a weakening of the yen if Takaichi won.
Furthermore, it is worth noting that the new president commented that he would move towards a balanced budget and would support the policies of the Bank of Japan in terms of normalizing its interest rates.
In turn, the election of Shigeru Ishiba comes after a mass resignation of Minister Fumio Kishida and his government team.
Despite the current context that tends towards calm, it is worth noting that The next Japanese parliamentary elections were brought forward to October 27. These elections take place in a context in which the ruling party is shaken by a series of problems and scandals in which undeclared political funds and illicit bribe funds are related.
We must also mention the influence of the rise of the US dollar which returned again to the level of 101.28 (DXY) driven by recent comments from Jerome Powell, who stated that the next rates depend on the evolution of economic data, probably referring to because there is no established line to reduce interest rates.
USD/JPY Chart Analysis: Substantial Volatility
USD/JPY broke the lows of 141 to 139.54 (September 16), before rebounding to 146.56 on September 27. Some traders interpret this move as a reversal of the long-term downtrend.
By the way, in the long term USD/JPY is trading in a descending channel that has just been broken upwards. However, traders should not rely too much on such an upward breakout, since with the drop to 139.54, the long-term descending channel had been broken down.
Therefore, the chart situation reveals the current changing geopolitical context that generates substantial volatility. This trend is complemented by the behavior of the moving averages, which are below the current price and seem to be converging, suggesting a possible slowdown in the decline.
So analysts should rely better on some key levels, such as:
Resistance at 144.73 or the 200 EMA level, which would begin to contradict the bearish trend. In addition to the resistance at 147.26, which would be a definitive break of the descending channel.
Likewise, and in a bearish context, 139.54 is a good reference point and its break would represent the accentuation of the bearish trend. Afterwards, traders should look for support at 137.25.
RSI at 50 shows “the calm after the storm”that is, it tends towards neutrality, which could point to a reduction in volatility.
Effects of the current Japanese political context
To complement this analysis it is worth mentioning some key points:
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