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The USD/JPY currency pair has experienced significant volatility recently, with Citigroup analyzing potential movements ahead of upcoming elections in both Japan and the United States.
As of 09:00 ET, USD/JPY was trading 0.1% lower at ¥148.09, following a two-month high of ¥149.12 earlier in the week.
In Japan, the new Prime Minister Shigeru Ishiba has called for a snap election scheduled for October 27. The Lower House consists of 465 seats, with the Liberal Democratic Party (LDP) currently holding 258 seats and its coalition partner, Komeito, having 32. A key measure of success for PM Ishiba will be whether he can sustain a majority of 233 seats for the LDP-Komeito alliance.
Analysts from Citi noted that the LDP’s approval ratings have suffered due to various political scandals in recent years, making it likely that the party will lose some seats in the upcoming election. However, they do not foresee the ruling coalition losing enough seats to lose its majority.
Citi mentioned that the Japanese general election is unlikely to significantly influence the USD/JPY pair, as the U.S. Presidential election taking place the following week is expected to have a more substantial impact.
Regardless of whether it’s a Harris or Trump administration, interventions aimed at buying yen have been generally accepted by the Japanese government in recent years. Conversely, selling yen (to buy dollars) could face challenges, particularly under a potential Trump administration, which may attempt to reverse the current strengthening trend of the dollar.
While Citi maintains a bearish outlook for the USD/JPY pair in the long term, they anticipate a recovery to approximately ¥150 by the end of the year. The recent rebound in USD/JPY following U.S. employment data aligned with their expectations. Nevertheless, Citi cautioned that the 350-day moving average, currently around ¥149, is becoming a resistance level, with potential near-term upside towards the 100-day or 200-day averages, which are around ¥151.5.
