Currency Analyst since 2010

USD/JPY: Abe has made his move

By Elizaveta Belugina

USD/JPY renewed 7-year highs as it rose to 119 yen mark. US currency continues strengthening, while the Japanese currency weakened.

Another round of weaker yen was triggered by the fundamental factors. Japan slipped into recession: the nation’s GDP fell by 1.6% in Q3 on the annualized basis. Traders were expecting a weak release, but they definitely didn’t think that the situation was so bad. As a result, Japanese government felt that it has to do something to save the fragile economy and decided to delay the unpopular sales tax hike until April 2017. In order to secure his positions for further reforms Prime Minister Abe dissolved parliament and called for a snap election on Dec. 14. In addition, the Bank of Japan’s Governor Kuroda has gathered support of the central bank’s majority for the monetary stimulus measures adopted at the end of Oct.

By the end of the week USD/JPY started correcting down. We assume that we’ve already seen the most of the growth. The market will now likely start discussing the upcoming elections. Although Abe’s party doesn’t have serious rivals, its position may worsen because of the recession. Many players may decide that the time to take profit has finally come. The 120 yen mark still looks attractive, but it’s going to provide a really strong resistance. On Thursday a “shooting star” was formed on the daily chart, so we can expect correction down and consolidation. Important support is located at 117.20 and 116.50.

On Monday Japanese markets will be closed because of the bank holiday. On Tuesday watch the release of the Bank of Japan’s meeting minutes and 2 speeches of Governor Kuroda. On Friday Japan will publish inflation, industrial production & retail sales figures.

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