JPY – Japan's fiscal outlook weighs on the yen

The yen hit a one-week low against the dollar on Tuesday as sources said new Prime Minister Sanae Takaichi is preparing an economic stimulus package that could exceed last year's 13.9 trillion yen to help households cope with inflation. The yen has fallen 2.5% this month, its biggest monthly drop since July, as investors anticipate expansionary fiscal policy from the new government and tensions with the Bank of Japan weigh on the yen.

Takaichi, an advocate of loose fiscal and monetary policies, said on Tuesday that the specific means of monetary policy would be determined by the Bank of Japan. New Finance Minister Satsuki Katayama said on Wednesday that coordination between the government and the Bank of Japan is necessary to ensure effective economic and monetary policies. The Bank of Japan will announce its next policy decision on October 30. Interest rate futures are pricing in about a 20% chance of a 25 basis point rate hike to 0.75%.

Technical charts show that USD/JPY has been trading sideways in the 145-149 range for the past month. With recent sharp gains, the exchange rate has broken through the 250-day moving average and the 150, pushing the RSI and Stochastics oscillators sharply higher from oversold territory. This suggests that USD/JPY is embarking on a significant upward trend, with potential extension targets at 152.20 and 153.30. Further support could include the February 12 high of 154.79 and the 155, with the next level expected to be 156.80. Support is initially seen at 150.40 and the 25-day moving average of 149.80. Significant support is expected from the 250-day moving average of 149.20 and the October 3 high of 147.81.

Forecast range:
Resistance: 152.20 - 153.30 - 154.79 - 155.00 - 156.80
Support: 150.40 - 149.80 - 149.20 - 147.81

This Week's News:
20/10
Japan's Liberal Democratic Party and Restoration Party agree to form a coalition government

BoJ board member Sou Takada continues to call for further rate hikes

21/0
Japan's new Prime Minister: Inflation targets should be driven by wage growth, and policies should be coordinated between the central bank and the government

22/10
Kyodo News poll shows that Japanese Prime Minister Sanae Takaichi's cabinet has a 64.4% approval rating

Focus:
Friday
Japan's September National CPI (07:30)
Japan's October Preliminary S&P PMI (08:30)

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