USD/JPY: Upper house election Sunday – OCBC

Recent polls by Nikkei, Kyodo, Asahi shows LDP-Komeito coalition is at risk of losing Upper House election. USD/JPY last seen at 148.58, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Bullish momentum on daily chart intact

"A total of 125 seats are up for grabs in the July 20 election. These include half of the seats in the Diet chamber and one for the Tokyo electoral district that has become vacant. The coalition held 141 Upper House seats before the campaign started, and 66 are being contested. Securing 50 seats will give the coalition a majority of 125 in the Upper House (i.e. they can afford to lose only 16 seats but losing more than 16 seats would imply a loss of majority for the coalition)."

"Seats lost in the Upper House can affect Ishiba administration. On the contrary, if PM Ishiba/coalition manages to get past this election, then it will be another 3 years before the next major election in Japan (excluding the election for LDP President in 2027). For now, the struggle in the Upper House has resulted in pledges of spending hikes and tax cuts in attempt to shore up votes. Moody’s has earlier warned that election results may impact fiscal health and ratings."

"This temporarily weighs on JPY outlook. 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)."