USD/JPY Election Outlook

Investing.com – The pair has seen volatile trading lately, with Citigroup discussing its likely moves with Japan and the US hosting elections in the near future.

At 09:00 ET (13:00 GMT), USD/JPY was trading 0.1% lower at ¥148.09, after trading at a two-month high of ¥149.12 earlier in the week.

In Japan, last week Shigeru Ishiba, who recently took office as the 102nd prime minister, called a snap election for October 27.

The Lower House has 465 seats, with the LDP currently holding 258 and its coalition partner Komeito holding 32. The ultimate measure of success for Prime Minister Ishiba will be whether he can maintain a 233-seat majority for the LDP-Komeito alliance.

“The LDP’s approval rating has fallen due to various political scandals in recent years, so it is almost certain to lose seats in this month’s election. However, we cannot imagine the ruling coalition losing the 57 seats, which would mean it no longer holds a majority,” analysts at Citi said in a note on Oct. 8.

Thus, “we do not believe the Japanese general election will be a significant driver of USD/JPY,” Citi added. “Next week’s US presidential election is likely to have a bigger impact.”

Under either a Harris administration or a Trump administration, we believe that the type of JPY buying interventions that the Japanese government has undertaken in recent years would likely be accepted to some extent.

However, it may be more difficult to step in to sell JPY (buy USD), and this may become virtually impossible under a Trump administration, given that former President Trump will likely try to reverse the USD’s strengthening trend .

“We are long-term bears on this currency pair, but our medium-term baseline scenario is a return to around ¥150 by the end of the year,” Read and USD/JPY’s rebound following US employment data last Friday it was within expectations.

“However, we believe the 350-day moving average (around ¥149 USD currently) is now turning into a resistance line. We see short-term upside for the 100-day or 200-day lines (around ¥151.5 currently),” Citi added.