USD/JPY: Breather for the time being – OCBC

USD/JPY continued to trade under pressure post-election outcome. Price action suggests that too much pessimism was in the price. Pair was last at 147.50, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Bullish momentum on daily chart shows signs of it fading

"Hence, a breather for now as markets monitor risks ahead. We also noted earlier that though LDP-Komeito coalition lost the Upper House majority, the margin of loss was not as bad as feared. First risk to watch is how opposition parties would push for reduction in taxes and/or raise spending, in turn adding to the risk that Japan’s credit rating may face a downgrade (as per Moody’s warning). Constitutional Democratic Party leader Noda already told a press conference overnight that CDP party will resubmit a bill to abolish provisional gasoline tax, targeting to help lower gas prices."

"Second, whether opposition parties may table a motion of no-confidence, leading to further political uncertainty. Potentially there may only be a slim chance given the narrower than expected win for opposition as there may not be sufficient unity within opposition. But from a structural point of view, it remains to be seen if LDP-Komeito coalition will prefer a different leader instead or require further reforms to appeal to younger voters. Nevertheless, PM Ishiba had vowed to stay on despite the setback."

"This may help to temporarily stabilise USD/JPY to some extent. Bullish momentum on daily chart shows signs of it fading while RSI turned lower. Support at 147.15 (38.2% fibo), 146.20 levels. Resistance at 149.40/70 levels (200 DMA, 50% fibo retracement of 2025 high to low)."