The Japanese Yen started the week under pressure, struggling to hold ground despite upbeat economic signals. Political uncertainty in Tokyo, following Prime Minister Shigeru Ishiba’s resignation, weighed heavily on sentiment and overshadowed optimism from stronger GDP growth and rising household wages.
Political Turmoil Dampens Yen Sentiment
Over the weekend, Prime Minister Shigeru Ishiba announced his resignation and instructed the ruling Liberal Democratic Party (LDP) to hold an emergency leadership vote. This surprise move has cast doubt over the stability of Japan’s political landscape and could temporarily delay the Bank of Japan’s (BoJ) policy normalization path. As a result, the Yen slipped against the US Dollar despite stronger domestic economic data.
Japanese Economy Shows Resilience
Fresh data on Monday confirmed Japan’s economy expanded 0.5% QoQ in Q2, faster than the initial 0.3% estimate. On an annualized basis, GDP grew 2.2%, supported by stronger consumer spending and private demand.
Meanwhile, real wages turned positive for the first time in seven months, rising 0.5% YoY in July, while household spending increased 1.4% YoY. These developments keep hopes alive that the BoJ could still deliver a rate hike before the year-end.
US Labor Market Data Favors Fed Rate Cuts
Across the Pacific, Friday’s US Nonfarm Payrolls report showed the economy added only 22K jobs in August, far below expectations of 75K. The unemployment rate rose to 4.3%, while wage growth slowed. These weak figures boosted bets that the Federal Reserve will cut rates in September, with traders even speculating on a possible 50 bps cut.
The dovish Fed outlook pressured the US Dollar, limiting its gains against the Yen despite Japan’s political concerns.
USD/JPY Technical Outlook
- Upside Resistance: The pair faces strong resistance near 148.75–149.20, aligned with the 200-day SMA and Fibonacci retracement. A breakout could open the door to the 150.00 psychological level, followed by 151.00.
- Downside Support: Key support lies at 148.00, with further downside toward 147.40–147.00. A break below 146.70 would expose the August swing low around 146.20.
What Traders Should Watch
- Political developments in Japan and the LDP leadership election.
- US inflation data (PPI & CPI) later this week, which could guide Fed policy expectations.
- BoJ commentary on wage growth and consumer spending trends.
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