USD/JPY soars as rate hike hopes chilled

The yen has stabilized after massive losses last week. In the North American session, the USD/JPY is trading at 148.03 at the time of writing, up 0.45%.

Ishiba’s U-turn sends yen reeling

The yen is coming off a spectacularly bad week with a 4.5% decline. This marked the yen’s worst week since 2020, during the covid pandemic. The sharp decline was driven by the political drama in Japan, which included the election of Shigeru Ishiba as the new prime minister. Ishiba has supported the Bank of Japan tightening policy in the past, but he has taken a U-turn on monetary policy since being elected prime minister.

Ishiba may have shifted his stance in order to avoid any divisive issues, such as raising interest rates, ahead of the snap election on October 27. The election will be followed by the next BoJ meeting on October 31, with the BoJ expected to maintain its policy settings.

On Wednesday, Ishiba met with BoJ Governor Ueda and said that Japan did not need to raise rates further. In a speech to parliament on Friday, Ishiba pledged to defeat deflation, a message which signaled a continuation of “Abenomics”, which advocates an accommodative policy. The yen slid 1.1% on Friday as expectations for a rate hike have evaporated.

Ishiba’s dovish stance and comments by BoJ officials that it the Bank will be extremely cautious before raising rates has dashed expectations for a near-term rate hike and made the Japanese currency less attractive to investors.

US nonfarm payrolls blow past estimate

The US labor market surprised to the upside, as September nonfarm payrolls surged by 254 thousand, up from a revised 159 thousand in August and blowing past the market estimate of 140 thousand. This was the strongest job report in six months. The unemployment rate dipped lower to 4.1%, compared to 4.2% in August and below the market estimate of 4.2%. The markets have raised the odds of a 25-basis point cut at the Fed November meeting to 87%, compared to 65% one week ago.

USD/JPY Technical

• USD/JPY tested support at 147.89 earlier. Below, there is support at 146.78
  There is resistance at 149.86 and 150.97

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