USDJPY: Potential for significant movement – TD Securities

The upcoming Lower House election in Japan on February 8 is expected to have significant implications for the USD/JPY exchange rate. TD Securities analysts predict that if the ruling Liberal Democratic Party (LDP) secures an absolute majority, USDJPY could rise towards 160. The report assigns a 65% probability to this outcome, indicating that political stability may lead to a bullish sentiment in the currency market.

Election impact on USDJPY

"Based on polls from both Nikkei and Yomiuri and the Feb 1 poll results from Asahi, the momentum is in the LDP's favor. We assign a 65% probability to a Takaichi absolute majority outcome (winning > 261 seats). In this scenario, expect USDJPY to gravitate towards 160 and the JGB curve to bear steepen."

"An absolute majority in the Lower House would allow the ruling coalition to pass Takaichi's preferred policies/ legislation quickly and remove the need to compromise with the DPP and other opposition parties."

"USDJPY could pop higher by 2-3 figures, with the 160 level marking a key resistance level which also attracts onshore media attention. In case of a rapid move beyond 160, we expect the MoF to intervene in the FX market, possibly with the help of the US since the reaction in JGBs and the JPY may spill over to the US market."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)