USD/JPY: Watch post-election responses – OCBC

USD/JPY saw fairly whippy trades this morning, likely in reaction to Upper House election results amid thin market liquidity as Japan markets are closed for holidays. USD/JPY last seen at 147.92, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Markets keep a look out on what may come next

"Bullish momentum on daily chart intact but there are signs that RSI is turning lower near overbought conditions. Support at 147.15 (38.2% fibo), 146.20 levels. Resistance at 149.40/70 levels (200 DMA, 50% fibo retracement of 2025 high to low). Upper House election results showed LDP-Komeito coalition is set to marginally lose the majority. Vote count shows ruling coalition losing Upper House majority with 122 seats while opposition party won 125 seats (125 seats needed for a simple majority)."

"At time of writing, there is 1 more seat up for grabs. While USD/JPY traded choppy, the pair did not significantly rise in a disorderly manner. Price action suggests that pessimism – coalition to lose Upper House majority – was already in the price. The risks to watch next are 1) how opposition parties would push for reduction in taxes and/or raise spending, in turn adding to the risk that Japan’s credit rating may face a downgrade (as per Moody’s warning)."

"Constitutional Democratic Party leader Noda already told a press conference overnight that CDP party will resubmit a bill to abolish provisional gasoline tax, targeting to help lower gas prices; 2) if opposition parties may table a motion of no-confidence, leading to further political uncertainty. For now, PM Ishiba had vowed to stay on despite the setback while markets keep a look out on what may come next."