The October rebound in USD/JPY quotations is impressive. This is largely due to a stronger dollar but also doubts about what the next decisions will be taken by the Bank of Japan. The currency pair, after reaching a bottom around 140.0, quickly found itself above 153.00. The situation with BoJ is far from enviable. On one hand, the institution would prefer to tighten monetary policy, on the other hand, it would like to take advantage of rising inflation, in order to be able to pull away from its many years of zero interest rate policy. The next meeting of the Japanese central bank is due to take place next week.
When BoJ raised interest rates last summer, a very weak NFP report was released shortly afterwards, which, along with the rate hike, caused a sharp fluctuation in the JPY exchange rate and the stock market. The date for next week’s meeting also does not seem ideal for making a fundamental change to monetary policy parameters.
You should take into account that on Sunday, the Japanese will go to the polls. After Prime Minister Ishiba Shigeru won internal party elections last month to take over the prime minister’s office from Kishida Fumio, he called snap elections to secure a mandate. However, the current governing coalition, composed of the Liberal Democratic Party and Komeito, is in danger of losing its parliamentary majority. As a result, when the BoJ meets next Thursday, it may still not be clear how the government will look in coming years and what its fiscal plans are for the near future. Remember that just under a week after the Bank of Japan’s decision, the US presidential election will take place, which will cause volatility in the market.
The majority of the market does not expect a change in the cost of money in Japan next week. Today’s inflation data from the Tokyo area are also not a strong argument for making policy more restrictive. Although prices rose by a seasonally adjusted 0.5 percent month to month, this only offset a sharp decrease of 0.3 percent from the previous month. The annual rate has dropped to 1.8 percent, below the central bank’s objective of 2 percent, due to a high base from the previous year. The core index shows that the pace of price growth excluding energy and food is just 1.1 percent year on year.
The USD/JPY pair has overcome the horizontal resistance located at 152.00 – 151.80, thereby implementing an upward scenario suggested by the formed “inverse head and shoulders” formation, which ended the dynamic drops lasting from mid-July to mid-September. The indecision of the BoJ and the real chance of Donald Trump’s victory in the November election – these two factors may influence the continuation of the rate increases, even up to the level of 162.00.
Łukasz Zembik, Oanda TMS Brokers
Source: https://managerplus.pl/usd-jpy-w-gore-niepewnosc-wokol-boj-i-zblizajace-sie-wybory-w-usa-kluczowe-dla-przyszlosci-kursu-43882
