Japan's lower house has elected Sanae Takaichi to become the next prime minister, with her set to lead the ruling coalition between the LDP and Nippon Ishin. As a reminder, Takaichi is a fiscal dove and a big preacher of "Abenomics". And that doesn't bode well for the BOJ's prospects to push for rate hikes.
When she won the LDP leadership election at the start of the month, the yen also fell in reaction to the result. And after some political uncertainty in recent weeks, we're starting to turn back to that again. The currency is down today but the reaction is relatively modest, with USD/JPY up just 0.4% to 151.40 currently:
The near-term chart shows that buyers have broken back above the 100-hour moving average (red line) but price action still keeps below the 200-hour moving average (blue line) of 151.53 currently. As such, the near-term bias is holding more neutral for the time being at least.
Now, much of the concerns surrounding Takaichi's motives were already factored into the gap higher in USD/JPY on 6 October. So, don't expect too big of a reaction to the latest headlines today.
If anything, it just removes the likelihood of the BOJ being able to push for a rate hike by year-end. Then again with some dissents being likely, traders will have to consider the propensity for any surprises. However, I wouldn't expect the Japanese central bank to run against the premiership and government at this stage.
For now, the 200-hour moving average at 151.53 is helping to limit gains for the pair. A break of that will draw back in the potential to revisit the monthly highs at 153.27.
