USD / JPY drops as Yen gains following Abe’s resignation as Prime Minister
Since Powell’s speech yesterday, the pair has pretty much followed the path of bond yields and after a brief push down after Powell, the pair has risen from 105.60 to an earlier today high of 106.95 – just before testing its 100 day moving average @ 107.00.
But Abe’s resignation threw a bit of a curve in yen trading ahead of the weekend, as the currency strengthened amid a wave of risk in Japanese markets as the Nikkei also fell. to the news.
For the USD / JPY, the pair rose from around 106.70 to a low of 106.11, but buyers are keeping a 100 hour MA (red line) defense @ 106.20 for now.
This means that the short term bias is even more bullish as the bulls keep their support at the key level above with additional support then seen closer to the 105.95-00 region, near the 200 hour MA ( blue line).
For now, there could be pressure on the yen pairs due to uncertainty surrounding the country’s political future and whether Abe’s successor will make any major changes to economic policies, i.e. say the “Abenomics” and the BOJ’s monetary policy outlook.
The consensus argument is that the relative uncertainty will likely be short-lived as the Japanese economy is in a rather fragile state after the coronavirus pandemic and no lawmaker – and even the BOJ – will be willing to risk things just yet. .
As such, there is a strong argument that the relative strength of the yen may not last and as long as bond yields are high like what we saw after Powell, it should support the yen pairs in a view of together.
Returning to USD / JPY, I would be more convinced of a further decline if we see the 200 hour MA @ 105.95 breached in the next few sessions. Otherwise, the relative weakness of the dollar so far also suggests that the pair’s decline may not extend too far.