USD/JPY Weakens, Downside Potential Seems Limited
The USD/JPY pair weakened to around 152.95 during the early Asian session on Tuesday. The pair moved lower as the US Dollar (USD) retreated from a near three-month high hit in the previous session. However, the pair’s downside may be limited amid uncertainty over the composition of the next government and the Bank of Japan’s (BOJ) interest rate hike plans.
The defeat of Japan’s ruling coalition in the general election raised political and monetary policy uncertainty and may exert selling pressure on the Japanese Yen (JPY). “The ruling LDP and its coalition partners lost their majority in the lower house, raising concerns about the shape and direction of the next government’s policy. Markets have also trimmed BOJ tightening expectations slightly (helping to boost local stocks),” said Scotiabank’s Chief FX Strategist Shaun Osborne.
The BOJ’s interest rate decision will be the focus on Thursday. Nearly 86% of economists polled by Reuters expect the Japanese central bank to leave interest rates unchanged at its October meeting on Thursday.
Elsewhere, data released by the Statistics Bureau of Japan showed on Tuesday that the country’s Unemployment Rate fell to 2.4% in September, down from the previous reading and market consensus of 2.5%.
Bets for less aggressive policy easing by the Federal Reserve (Fed) could provide some support for the greenback in the near term. According to the CME FedWatch tool, traders have priced in a near 96.8% chance of a 25 basis point (bps) interest rate cut in November and expect a similar move at the December meeting.
Source: FXStreet
