JPY: Don't read too much into yen strength – ING

The Japanese Yen (JPY) is a little stronger today as the market digests yesterday's Upper House election results. Here, the ruling coalition between the Liberal Democratic Party (LDP) and Komeito lost its majority, although it remains by far the largest political bloc in parliament. The problem, it seems, is that the opposition parties are very splintered and have little chance of coming together as a political force, ING's FX analyst Chris Turner notes.

A brief spike to the 151/152 area is possible

"Where does this leave Japanese politics and the yen? Heightened uncertainty looks likely. Current Prime Minister Shigeru Ishiba has pledged to stay on and try to cut a trade deal with the US. Opposition parties might try to make political hay by pushing for looser fiscal policy to address the cost of living challenges in Japan, and this prospect had weighed on JGBs ahead of the election."

"This sounds yen negative. And there is also the risk that if PM Ishiba is pressed to step down, he could be replaced by someone like Sanae Takaichi, who wants the Bank of Japan to go slow with rate hikes. In other words, it is not clear that the yen should be rallying today. A clearer read may emerge tomorrow when Japanese financial markets reopen after the Marine Day public holiday."

"Let's see how the dust settles over the next couple of weeks; we don't rule out a brief spike to the 151/152 area. But by year-end, we expect the weaker dollar to be the dominant theme and USD/JPY to be trading back to the 140 area."