The USD/JPY pair remains stable around 150.60, upholding a bullish trend as market participants assess Japan’s significant political transition alongside the prolonged U.S. government shutdown. The appointment of Prime Minister Sanae Takaichi, Japan’s first female leader, has sparked fresh speculation regarding the Bank of Japan’s policy trajectory, as markets foresee a postponement in rate normalization. This occurs as the Federal Reserve is currently in a blackout period prior to its upcoming meeting, resulting in muted macro signals. The pair is currently positioned slightly above its 20-day Simple Moving Average at 150.14, a threshold that has consistently acted as technical support throughout October. The USD/JPY has increased by almost 0.5% since the low of 149.37 observed on Friday, driven by the growing policy divergence between the BoJ and the Fed.
The yen’s weakness has been significantly influenced by recent political developments in Japan. The Liberal Democratic Party and the Japan Innovation Party have reached an agreement to establish a coalition government, resulting in Takaichi overseeing both the lower and upper houses. However, they remain below the 233-seat majority required for unfettered legislative action. Market participants view her expansionary approach as an indication that the BoJ may delay tightening measures, thereby sustaining negative real rates for an extended period beyond earlier forecasts. On Monday, BoJ Board Member Hajime Takata affirmed this perspective, indicating that Japan has “roughly achieved” its 2% inflation target. Meanwhile, Shinichi Uchida emphasized that the approach to policy normalization will continue to be contingent on data. The interplay of stable inflation and political backing for increased fiscal stimulus has maintained pressure on the yen, bolstering bullish sentiment in USD/JPY.
In the United States, macroeconomic visibility is currently constrained due to the ongoing government shutdown, which has now entered its third week, alongside the Federal Reserve’s pre-meeting blackout period. In light of the absence of new data, market expectations have shown a tendency to stabilize with a dovish inclination: futures markets, are fully pricing in 25-basis-point rate cuts for both the October and December FOMC meetings. The potential for reduced U.S. interest rates has limited the dollar’s upward movement, yet the yen’s lackluster performance remains a significant factor. The U.S. Dollar Index is currently positioned around 96.20, reflecting an increase of 0.32%, demonstrating stability in the face of political gridlock. Market participants observe that the absence of hawkish signals has not dissuaded bullish sentiment in USD/JPY, as intraday interest has surfaced around the 150.50–150.45 range, a significant pivot point corresponding with the 23.6% Fibonacci retracement of October’s upward movement.
The technical setup continues to be advantageous for USD/JPY buyers. The pair has recorded three successive bullish daily candles, indicating the robustness of the rebound from the lows observed last week. A sustained move above 151.00 could facilitate a test of the 151.75 confluence zone, which corresponds with the 61.8% Fibonacci retracement of the recent correction and the 200-hour SMA. Should this resistance be breached, the subsequent upside targets are positioned at 152.00 and 152.25, with a possible extension towards 153.00, aligning with the high observed on October 10. On the downside, solid support is positioned at 150.00, with additional backing at 149.35, the intraday low that interrupted last week’s decline. A decline beneath 148.45–148.40 would shift momentum towards a short-term correction; however, the current price action indicates that consolidation above 150 continues to be the prevailing trend.