Yen to stay on back foot
The yen carry trade is back.
The Japanese currency tumbled on Wednesday amid speculation that the Bank of Japan's effort to tighten monetary policy could be complicated by weekend elections if the ruling coalition loses its majority and Prime Minister Shigeru Ishiba is replaced by a leader who favors more stimulus.
At the very least, Japan's central bank is seen holding rates steady until December so it can assess its latest economic projections at the policy meeting on Oct. 30-31. On Tuesday, the IMF lowered this year’s projected growth for Japan to 0.3% and sees the economy expanding 1.1% in 2025.
The policy uncertainty has roiled local markets with the Nikkei falling for three days even as the yen weakens. Some of that uncertainty may be addressed at 3pm EST Wednesday when BOJ Governor Kazuo Ueda discusses the inflation and monetary policy outlook at the IMF “Governor Talks” series.
Even if some questions are answered, rising Treasury yields on expectations of a less-dovish Fed or victory by Donald Trump in the U.S. presidential election in November should underpin the greenback.
Technically, USD/JPY bulls are in control after it topped the key 152 level with volatility rising across tenors. Spot gains have slowed as it turns overbought on its 14-day RSI. Nearby resistance for pair is seen at 153.41, a 61.8% Fibo retracement of its year-to-date high to low, and the top of its 20-day Bollinger Band at 153.57. Below 152, support is seen at its cloud top of 150.70.
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yen chart https://tmsnrt.rs/3UmVddV
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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