The yen is set to record its biggest weekly gain since November 2024 as the market believes that Prime Minister Kishida Fumio’s victory will enable her to expand fiscal stimulus while maintaining confidence in the financial markets.
The yen has strengthened against the US dollar for four consecutive trading days, rising by about 2.8% so far this week. The continuous slump in risky assets has also supported the yen’s exchange rate due to the increased demand for safe-haven assets.
Investors interpreted Koshino’s overwhelming victory as reducing political uncertainty and lowering the risk of the worst-case scenario for the fiscal situation, which boosted the yen and caused Japanese government bond yields to fall from the multi-year highs they reached last month. On Monday, Koshino acknowledged at a press conference that the market was concerned about the two-year deferral of the consumption tax hike on food and reaffirmed the plan to avoid financing the policy through bond issuance.
“After the Liberal Democratic Party’s landslide victory, the easing of fiscal concerns and expectations of the Bank of Japan raising interest rates have led to a strengthening of the yen,” said Takeshi Yamamoto, a trader at Sumitomo Mitsui Trust Bank in New York.
Atsushi Mima, a senior official in charge of Japan’s monetary policy, said that despite the yen’s strengthening this week, the government remains highly vigilant about the currency’s movement. Market concerns that the government might step in to support the yen have also limited the extent of the yen’s decline.
Traders are digesting Japan’s rare policy mix of tax cuts without worsening the fiscal deficit and possibly making up for it through an internal fund pool. The risk is that this could involve selling foreign exchange reserves, although short-term buying has supported the yen. However, as the market cannot predict how far officials are willing to go, it has also increased volatility.
Technical analysis:
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Gold: Overnight, due to market rumors that Russia might return to the US dollar system, the gold price dropped by nearly 200 dollars within half an hour. After that, the price gradually stabilized. For today, we suggest looking for buying opportunities when the price retraces to the demand zone and continue to follow the path of price correction and rebound. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: Yesterday, our buy stop in the blue area was able to achieve a certain effect. However, the price then dropped by nearly 600 basis points, stabilizing temporarily at the 24,600/24,700 range. For operations, it is recommended to wait for the short-term upward recovery to 24,900/24,950 before considering a pullback buy. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, the buy limit in the green area we alerted provided a rebound effect for a while. However, after that, due to Trump’s remarks indicating that he would reach an agreement with Iran, the price experienced a new round of decline. Currently, the key level for bulls and bears is at 63. We suggest observing for now and waiting for a recovery before considering the next move. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Key economic data and events to watch today:
21:30 US January Unadjusted CPI Year-on-Year Rate
