USD/JPY: Keeping watch on MoF rhetoric – OCBC

USD/JPY stays better bid, as market partially pare back Oct hike expectations. Etsuro Honda, who advises PM-to-be Takaichi said that a rate hike in October is probably difficult. But he did say that he doesn’t see a problem if it’s raised by 25bp in December, depending on the macroeconomic environment. USD/JPY was last at 150.80 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risks skewed to the upside in the interim

"Going forward, we need to monitor how her proposed policies may be executed and if they will be toned down or if BoJ policy bias may be affected. A pushback against her proposed policies may help to moderate the pace of the upmove or even see the pair turn lower. Elsewhere, it is also worth keeping a look out on cabinet reshuffling, budget and trade policy. In particular, she earlier indicated that she wanted to review the US trade deal especially the $550 billion Japanese investment fund."

"Given the uncertainties, USD/JPY may still trade with a bid tone in the interim unless USD falls in a significant way or if the BoJ signals a rate hike earlier. Elsewhere, MoF rhetoric is also a key consideration, with regards to the volatility and level of USD/JPY. To some extent, 150 may have been an unspoken line in the sand for topside resistance, but this may have been shifted out. This morning, Finance Minister Kato said he will closely watch any excessive moves in FX market but his comments do not appear to come across as worrisome, at this point."

"Daily momentum turned mild bullish while RSI rose. Golden cross appears to be in the making, where 50 DMA cuts 200 DMA to the upside. Risks skewed to the upside in the interim. Resistance at 150.90 levels (Jul high), 151.70 (61.8% fibo retracement of 2025 high to low) and 152.50 levels. Support at 148.30 (200 DMA), 147.80 (21, 50 DMAs) and 146.50 (100 DMA)."