USD/JPY: Near term election risks – OCBC

FXStreet Insights Team FXStreet

USD/JPY continued to trade higher, driven by higher UST yields (due to US CPI report) and Upper House election uncertainty. USD/JPY was last at 148.68 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Election results may impact fiscal health and ratings

"Recent poll by Nikkei, Kyodo, Asahi shows LDP-Komeito coalition is at risk of losing Upper House election. A total of 125 seats are up for grabs in the July 20 election. These include half of the seats in the Diet chamber and one for the Tokyo electoral district that has become vacant. The coalition held 141 Upper House seats before the campaign started, and 66 are being contested."

"Securing 50 seats will give the coalition a majority of 125 in the Upper House (i.e. they can afford to lose 16 seats). Nevertheless, seats lost in the Upper House can affect Ishiba administration. On the contrary, if PM Ishiba manages to get past this election, then it will be another 3 years before the next major election in Japan (excluding the election for LDP President in 2027)."

"For now, the struggle in the Upper House has resulted in pledges of spending hikes and tax cuts in attempt to shore up votes. Moody’s has earlier warned that election results may impact fiscal health and ratings. This temporarily weighs on JPY. Bullish momentum on daily chart intact while rise in RSI shows tentative signs of turning lower near overbought conditions. Next resistance at 149.40/70 levels (200 DMA, 50% fibo retracement of 2025 high to low). Support at 147.15 (38.2% fibo), 146.20 levels."

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