Political Instability Sends Yen Plunging

Fundamental Analysis

* Coalition Collapse: The Japanese Yen has experienced a notable decline against the dollar, driven by political turmoil in Japan. For the first time in 15 years, Japan’s dominant ruling party has lost its majority, as indicated by Sunday’s national election results, sparking concerns about stability in the world’s fourth-largest economy and the uncertain composition of the next government, according to Reuters. Reports from NHK show that the ruling Liberal Democratic Party and coalition partner Komeito secured only 215 of the 465 seats in the lower house, falling short of the 233 needed for a majority. Meanwhile, the main opposition party, the Constitutional Democratic Party of Japan (CDPJ), saw gains, rising to 148 seats from 98. This election outcome raises the prospect of a hung parliament, which could lead to increased fiscal spending as markets weigh a possible shift toward more dovish economic policies.

Technical Analysis

* Technical Breakout: USDJPY was traded higher following prior breakout above the previous resistance level 152.20. MACD which illustrate bullish bias signal with the formation of golden cross suggest the pair to likely further extend its gains.

* Resistance and Support: If the bullish momentum persists, there’s a strong likelihood that the price will potentially head towards the level 155.350. Conversely, a potential reversal is also to be expected and the price could head back towards 152.200.

Potential Risks

Looking ahead, investors will turn their attention to key upcoming U.S. data, including the ADP Non-Farm Employment Change, GDP, Core PCE Price Index, and Non-Farm Payroll. Additionally, close attention will be on the Bank of Japan’s Interest Rate Decision, as recent election outcomes could potentially influence the central bank’s stance.

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Monitoring

Stay updated on US and Japan data, central bank updates and any shifts in the US Dollar’s strength by following PU Xtrader’s financial news page.

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