USD/JPY: Watching the 150 line in the sand – OCBC

Sanae Takaichi was elected as the leader at the LDP election on 4 October, in a run-off vote after none of the 5 candidates won a majority in the first round. She is expected to be appointed the next PM after the vote in parliament, scheduled on 15 October. USD/JPY gapped higher; last at 150.38 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Daily momentum turns flat

"While LDP remains the largest party in parliament, the LDP-led coalition no longer holds majorities, and will require support from opposition party. She was vocal against BoJ hiking rates last year, and on winning the race over the weekend, she made it clear that the government will take the lead in setting fiscal and monetary policy, and that her priority is to reflate demand and the broader economy. There are concerns that her appointment could delay BoJ policy normalization, and that BoJ may again hold rates steady at the 30 October BoJ meeting."

"The concern may be valid but at the same time, the macro-economic conditions today vs. the macro conditions during former PM Abe’s era are different. During those days, Japan was fighting deflation but today, we have already seen inflation above 2% target for more than several months. A gradual pace of BoJ normalisation is still plausible given that rate remains relatively low. But going forward, we need to monitor how her proposed policies can be executed and if they will be toned down or if BoJ policy bias may be affected."

"Short USD/JPY trade saw some unwinding this morning. Daily momentum turned flat while RSI rose. Risks skewed to the upside in the interim. Resistance at 150.90 levels (July high). Support at 148.30 (200 DMA, 23.6% fibo retracement of April low to July high), 147.80 (21, 50 DMAs) and 146.70 (38.2% fibo). Given the uncertainties, USD/JPY may drift higher in the interim unless USD is down in a significant way."