Japanese election could push JPY higher
Japan’s cosy political consensus around the Bank of Japan’s massive five-year old quantitative easing programme could come in for a challenge from Oct 22 when the country holds its general election.
A weakening of the grip of Prime Minister Shinzo Abe’s Liberal Democrat party and its coalition could call into question much of his Abenomics strategy potentially sending the USD/JPY to around 100-105.
Until recently Abe and his coalition look set to easily win a big majority in his third election run. Though, still expected to win, there are doubts creeping in over how big that majority might be with several new parties with a more populist flavour having popped up.
The governor of Tokyo Yuriko Koike and her recently formed Party of Hope could make a dent in Abe’s ruling coalition. She is known not to be so keen on the BoJ’s QE policies and should she win enough seats in parliament she could make those views felt, propelling JPY higher, at least in the short-term until Japanese exporters voice loud complaints about the impact on their profits.
However, she has slipped in recent polls, but probably shouldn’t be written-off just yet as many Japanese voters are still undecided over who to support meaning there’s plenty still up for grabs.
Indeed, UK Prime Minister Theresa May started her election campaign with a massive poll lead only to end up losing seats and Germany’s chancellor Angela Merkel has also emerged as a diminished figure from recent elections there.
The other factor, which could influence JPY at any time, are events in North Korea with the stand off between them and US allies appearing to be far from over.
TECHNICAL ANALYSIS: USD/JPY - Battling key support levels
USD/JPY had a nice ride up since late August / early September, but since this October appears to be keeling over. This has happened after numerous attempts to take out resistance levels around 113.00. Typically, when a resistance or support area holds, markets tend to veer off in the opposite direction.
USD/JPY now looks poised to try and challenge support around 111.60, which if successfully breached could see the pair test the next levels of support around 110.85. The pair are staging this battle around the 200-day moving average, which could prove difficult to breach decisively and instead oscillate either side of it until some new factor exercises enough influence to create a trend.
Nonetheless, from the perspective of some technicals, the way looks clear for that challenge, the daily RSI is still neutral and the lower Bollinger bands are not yet being breached. However, a period of consolidation looks as likely as a big test to the downside at the moment.
Support levels can be seen at 111.57, 110.85, 110.67 and 110.48 with resistance seen around 112.31, 112.48, 112.85 and 113.44.
By Justin Pugsley, Markets Analyst, MahiFX