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market analysis
With Sanae Takaichi appointed as Prime Minister of Japan, may Abenomics make a comeback and trigger a devaluation of the yen?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: Sanae Takaichi is appointed Prime Minister of Japan, will Abenomics make a www.xmh100.comeback, may it trigger a depreciation of the yen?". Hope this helps you! The original content is as follows:
On Tuesday (October 21), the yen continued to decline during the day. After the House of Representatives voted to approve Sanae Takaichi as the first female prime minister of Japan, the US dollar against the yen once significantly rose to 151.60, an increase of about 0.58%. Sanae Takaichi's appointment as Japan's first female prime minister sparked speculation about more fiscal stimulus and the Bank of Japan's possible delay in raising interest rates, which in turn dragged the yen lower. In addition, general optimism in global stock markets has also become another factor that weakens demand for the safe-haven yen.
However, investors generally believe that the Bank of Japan will stick to the policy normalization path in the context of sticky inflation and economic resilience. This is a significant divergence from the market's dovish expectations for the Federal Reserve, which may limit the space for further appreciation of the US dollar and inhibit the rise of the US dollar against the yen. In addition, the interest rate differential between the United States and Japan is expected to narrow, which may provide some support for the low-yielding yen.
Sanae Takaichi was elected Prime Minister, advocating the implementation of expansionary fiscal policies
According to CCTV News, in the voting for the Prime Minister nomination of the House of Representatives of Japan on Tuesday, Sanae Takaichi, leader of the Liberal Democratic Party, received 237 votes (a total of 465 seats in the House of Representatives), winning more than half of the votes. Although the Senate Prime Minister's nomination election has not yet taken place, Sanae Takaichi has actually been elected as the 104th Prime Minister of Japan, and Japan will usher in its first female Prime Minister.
Sanae Takaichi, 64, who was elected leader of the Liberal Democratic Party on the 4th of this month, is one of the representatives of Japan's right-wing politicians. He has always been regarded as a loyal supporter of "Abenomics" and advocates the implementation of loose monetary policy, expansion of fiscal spending and promotion of structural reforms.
She had previously criticized the Bank of Japan’s interest rate hike plan during the 2024 Liberal Democratic Party leader election, although Bank of Japan Governor Kazuo UedaSaid that interest rates will be determined by the central bank "without any preconceived ideas."
As of 14:10, the newly appointed Japanese Prime Minister Takaichi Sanae has entered the Prime Minister's Office and started to form a cabinet.
Previously, at the signing ceremony on Monday, Nikkei reported that Takaichi said, As a partner who aims to realize a www.xmh100.common national vision, I eagerly look forward to working with you to consolidate Japan's economic foundation and build this land into a country that can be trusted to be entrusted to the next generation.
Yoshimura Hirofumi, leader of the Japan Reform Party and Osaka Governor, said: "As a reformist party, we are also eager to advance the reforms we have advocated so far and improve Japan." He had called Takaichi on Monday morning and informed: "We agreed to form a coalition government. Let us work together to push Japan forward."
The cooperation between the Liberal Democratic Party and the Japan Reform Party was reached after its long-term ally Komeito announced the end of the 26-year ruling alliance, causing Japanese politics to fall into turmoil. This decision triggered fierce www.xmh100.competition among various parties, with all parties scrambling to form a new government to replace the cabinet.
Takaichi said: "The agreement contains content previously agreed upon by the Liberal Democratic Party and the Japan Reform Association. I think this coalition government is crucial to effectively promote Japanese politics."
Japan's ruling Liberal Democratic Party and the Japan Reform Association reached a joint governance agreement on Monday, and the House of Representatives voted to approve Takaichi Sanae as prime minister. These developments have intensified the market's expectations for Japan to implement a more expansionary policy, which may prompt the Bank of Japan to further delay the process of raising interest rates.
The yen continues to be under pressure, and market concerns about Japan’s fiscal outlook have kept it bearish.
Japan’s inflation has remained above the central bank’s 2% target for more than three years, and economic data as of June have increased for five consecutive quarters. Central Bank review member Hajime Takada made it clear on Monday that Japan has basically achieved its price target, while Central Bank Deputy Governor Shinichi Uchida also reiterated last Friday that if the economy and price trends are in line with expectations, the central bank will continue to raise interest rates, which has continued to increase market expectations for another interest rate hike this year.
In sharp contrast, according to the CME Fed Watch Tool, the market has fully priced in the Fed to cut interest rates by 25 basis points at each of the October and December policy meetings.
The U.S. Senate rejected the bill to restart the government for the 11th time on Monday. The shutdown is about to enter its fourth week. The deadlock between the two parties continues with no signs of easing. These factors have put pressure on the US dollar and limited the upside of the US dollar against the yen.
In terms of geopolitics, Ukrainian drones attacked a major natural gas processing plant in southern Russia, causing concern. U.S. President Trump claimed last Sunday that most of the territory in Ukraine's Donbas region should be ceded to Russia to end the conflict between Russia and Ukraine. This statement further exacerbated geopolitical uncertainty.
USD/JPY technical analysis: Bulls have the advantage
USD/JPY returned above the 151 mark driven by bargain hunting, and bulls regained the initiative. Hourly technical indicators favor the bullish trend.
On the upside, initial resistance levelThe 61.8% Fibonacci retracement level of the decline from this month's high (151.72). If this resistance level is effectively broken, the exchange rate may stand firm at the 152.00 integer mark, then challenge the 152.25 supply zone resistance level, and finally test the 153.00 mark.
On the downside, the 150.50-150.45 area (i.e., the Asian market low) and around 150.25 (including the 23.6% Fibonacci retracement level) will form support, followed by the 150.00 psychological mark. If it effectively falls below 150.00, it may drop to the 149.40-149.35 area (the nearly two-week low hit last Friday). If it falls further below, it may slide to the 149.00 integer, and finally test the support band transformed from strong resistance at 148.45-148.40.
The above content is all about "[XM Foreign Exchange Decision Analysis]: Sanae Takaichi becomes the Prime Minister of Japan, will Abenomics make a www.xmh100.comeback, which may trigger the depreciation of the yen?" It is carefully www.xmh100.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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