USD/JPY: BoJ MPC tomorrow – OCBC

Government formation is key but this may take up to weeks or even months. Uncertainty on this front may complicate fiscal-monetary policy, and weigh on JPY in the interim. LDP coalition can either form a coalition with another smaller party such as DPP or JIP or attempt to govern with a minority government with ad-hoc cooperation on certain issues with the smaller parties. Pair was last at 153.18 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Near term retracement not ruled out

“But these parties have previously critic BoJ for raising interest rates. Alternatively, the opposition CDP leader, Noda (whom was a PM himself in 2011-12) can push to seek a coalition with other opposition parties. But it was last known that his party has had little success finding partners due to policy differences. Local news reported there may be a vote on 11 Nov on who will take premiership in a special parliamentary session. And there is now greater uncertainty if PM Ishiba will win enough votes to lead a new government as the new PM.”

“The focus is on BoJ MPC tomorrow. Consensus is for hold as policymakers may want to wait for greater clarity on government formation and economic policies before deciding on policy choice. That said, one may not want to rule out any surprises as policymakers may consider a hike tomorrow as an opportune time to tame JPY bears.”

“Bullish momentum on daily chart intact while RSI is from near overbought conditions. c. Support at 151.50 (200 DMA), 150.60/70 levels (50% fibo retracement of Jul high to Sep low, 100 DMA). Resistance at 155 and 156.50 (76.4% fibo). Slowing BoJ policy normalisation and Fed in no hurry to cut, alongside US election risks may imply that USDJPY may well stay supported in the interim.”