On Friday, the yen underwent dynamic appreciation. USD/JPY rates fell from the level of 146.50 to 142.00 and are currently below that lower limit. This comes in the wake of reports that the Liberal Democratic Party of Japan has elected Shigeru Ishiba as its new leader. He is likely to become the next prime minister. The reaction on the currency market was swift and robust. Previously, there was also talk of Sanae Takaichi potentially taking over as prime minister, replacing outgoing Fumio Kishida.
Takaichi was and still is seen as an opponent of the restrictive policy of the Bank of Japan (BoJ). The market was somewhat fearful that if she were to take office, she would advocate maintaining ultra-loose monetary policy and a return to the times of Abenomics – an economic policy program introduced by Prime Minister Abe in 2013 aimed at revitalizing the economy.
The future prime minister made it clear that he is not opposed to the BoJ’s restrictive measures, which became positive news for the yen. However, the Bank of Japan still lacks certainty about whether inflation in Japan will persist, and whether the normalization of monetary policy will be successful.
A few months ago, the BoJ caught the market off guard by raising interest rates, but following the tumultuous events in early August (collapse of Japan’s stock market, considerable yen appreciation resulting from the unwinding of carry trade transactions), the bank somewhat softened its message, and further tightening became doubtful. The institution is likely waiting for the dust from the summer’s upheaval to settle before resuming its operations.
In September, inflation in the “Land of the Rising Sun” stood at 3 percent Y/Y, with a core CPI of 2.8 percent Y/Y. Since the start of the year, there has been a slight upward trend, and if this continues, the BoJ may decide to take another step towards tightening monetary conditions.
The OIS market currently gives just under a 25 percent chance of an interest rate hike in December and over a 27 percent probability of a similar move in January 2025.
USD/JPY rates have been trending downward since the first week of July. The declines broke the accelerated uptrend line drawn through the lows from January and December 2023. However, the current multi-month declines are still smaller in range compared to the decreases seen in Q4 2024. The key technical support is currently at the 140.00 level, followed by 138.00-137.50.
Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/silna-aprecjacja-jena-po-wyborze-shigeru-ishiby-na-lidera-ldp-49840
