USD/JPY Outlook: Navigating Election Uncertainty-Citi
With elections coming up in the US and Japan soon, Citigroup examines the expected moves of the USD/JPY pair, which has been trading erratically recently.
After opening the week at a two-month high of ¥149.12, USD/JPY saw a 0.1% decline to ¥148.09 at 09:00 ET (13:00 GMT).
Recently appointed 102nd Prime Minister of Japan, Shigeru Ishiba, announced last week that a snap election would be held on October 27.
There are 465 members in the Lower House; the LDP now holds 258 of those seats, while Komeito, its coalition partner, holds 32. PM Ishiba’s ability to keep the LDP-Komeito alliance with a majority of 233 seats will be the ultimate test of his effectiveness.
“The LDP is almost guaranteed to lose seats in this month’s election as a result of the numerous political scandals that have damaged the party’s popularity over the past few years. But, in a report dated October 8, analysts at Citi stated, “We cannot envision the ruling coalition losing the 57 seats that would mean it no longer holds a majority.”
Therefore, Citi continued, “we do not think the Japanese general election will be an important driver of the USD/JPY.” “There’s a good chance the US Presidential election the following week will have a greater impact.”
We think that the kind of JPY-buying actions the Japanese government has been doing for the past few years would likely be tolerated to some degree under either a Trump or a Harris administration.
But considering that former President Trump will probably attempt to buck the trend of the USD gaining, it might be harder to intervene and make it almost impossible to sell the JPY and purchase the USD during a Trump government.
While Citi states that “we are bearish on this currency pair in the long run, our base-case scenario for the medium term is a recovery to around ¥150 by year-end,” the USD/JPY’s recovery following the release of US job statistics last Friday was expected.
But we think the 350-day moving average, which is currently at about 149$, is starting to act as a resistance line. We forecast near-term upside to the 200-day or 100-day lines, which are now trading at about ¥151.5, said Citi.
FAQs
What has been the recent performance of the USD/JPY pair?
- After starting the week at a two-month high of ¥149.12, the USD/JPY pair slightly declined by 0.1% to ¥148.09.
What effect might the USD/JPY pair experience from the US presidential election?
- The USD/JPY pair is anticipated to be more impacted by the U.S. presidential election, which takes place following the Japanese election. Either a Trump or a Harris administration would probably put up with Japan’s yen-buying actions, although Trump would make things more difficult by opposing JPY strength and encouraging USD purchases.
What is the long-term forecast for the USD/JPY pair by Citigroup?
- Long-term, Citigroup is still pessimistic about the USD/JPY, but it does anticipate a medium-term rebound to about ¥150 by year’s end.
