- The yen fell to a three-month low after Japan’s election.
- Japan’s ruling Liberal Democratic Party won only 215 seats.
- The probability of Trump’s victory in the November election boosted the dollar.
The USD/JPI forecast shows lower expectations for a BoJ rate hike after the Japanese election, leaving the yen fragile. At the same time, the dollar remained strong and headed for monthly gains on better-than-expected economic data and the Trump trade.
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Following Japan’s election, the yen fell to a three-month low as market participants cut expectations of a BoJ rate hike. The Liberal Democratic Party won just 215 seats, short of a majority of 233. Consequently, it creates a challenging outlook for fiscal and monetary policy. At the same time, the Bank of Japan could take a cautious tone due to political uncertainty.
Economists expect the next rate hike in March next year. Meanwhile, inflation data shows weak spending that could lead to further delays in hikes. As the yen falls, Japan’s top officials are warning of tough moves. Notably, the yen had the biggest loss against the dollar this month, 6.4%.
Meanwhile, the US dollar strengthened amid signs that the US economy remains resilient despite high interest rates. Data during the month revealed a better-than-expected performance, reducing bets on a Fed rate cut. Traders moved from pricing a 50 basis point rate cut in November to a 25 basis point rate cut.
At the same time, the probability of Trump’s victory in the elections in November increased the dollar. Trump’s policies could increase inflation, pausing the Fed’s rate-cutting cycle.
USD/JPI Key Events Today
Market participants will continue to digest the Japanese election as there will be no key events today.
USD/JPI Technical Forecast: Bullish momentum fading above 153.00
From the technical side, USD/JPY the price made a new high above the 153.00 resistance level. Furthermore, the price is trading well above the 30-SMA with RSI above 50, indicating a bullish trend.
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However, the RSI also made a bearish divergence, indicating weaker bullish momentum. Therefore, the bulls could be exhausted, allowing the bears to take control by pushing below the 30-SMA. A break below the SMA would allow the price to reach the 150.00 support level. However, if the bulls regain momentum, the price could only go back to the SMA before making new highs above 153.00.
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