Yen Strengthens Following Volatile Movement Post-LDP Presidential Election
Today, the USD/JPY opened the Tokyo market in the high 144 yen range, following yesterday's fluctuations that saw it touch the 145 yen level multiple times. After reports indicated that candidate Takai was leading in the LDP presidential election, foreign investors engaged in yen selling, pushing the pair up to 146.49 yen. However, in the runoff election, candidate Ishiba, who placed second in the first round, defeated Takai and claimed victory. In response to this outcome, the USD/JPY plunged from the 146 yen range down to 143.50 yen.
Although it temporarily rebounded to the 144 yen range, yen buying resumed, leading to further declines. This instability is expected to continue. In particular, as foreign investors who had anticipated Takai’s lead (who advocated for aggressive fiscal policies) moved to sell yen, selling pressure is likely to affect the pair during any rebounds. The swift drop from the highs has also left buy positions unadjusted, creating a situation where selling is likely during any recoveries.
Outlook and Key Points for USD/JPY
The 142.90 yen level touched on the morning of the 25th is being closely monitored as a near-term support line. If this level is convincingly breached, a drop towards the 140 yen range could become plausible. However, the USD/JPY's rise has largely been driven by dollar buying expectations due to hopes for a soft landing in the U.S. Therefore, if the movements stabilize, a rebound could occur, and continued volatility is anticipated.
Cross-Yen Trends Also Show Similar Instability
Cross-yen pairs are exhibiting a generally similar trend. The EUR/JPY saw a yen depreciation to 163.49 yen during the afternoon in Tokyo, but then plummeted to 160.12 yen. The GBP/JPY also experienced a decline of over 4 yen from a high of 195.97 yen down to 191.94 yen. While this rapid movement may seem excessive, there remains a strong awareness of yen depreciation adjustments, suggesting that selling may re-emerge during recovery phases.
Conversely, pairs like EUR/USD are expected to show relatively calmer movements.
Future Points of Interest
Today has seen a rapid increase in yen buying following the announcement of Ishiba as the new party leader. This yen buying is anticipated to progress in the U.S. market as well, thus we will closely watch for selling opportunities in the USD/JPY.
Furthermore, attention should be given to the U.S. PCE deflator to better gauge the dollar's movements.