USD/JPY is currently trading at 113.30, after already reaching a peak of 113.46. This is the line that it reached earlier in the month and also in July.
The drivers come from both sides of the currency pair. Can it reach even higher ground?
In the US, the Senate took the first step in approving tax reform. In a narrow 51 to 49 vote, Republicans managed to agree on a blueprint for the 2018 budget, the first step in a long process. The road is still quite long and details are lacking, but this kind of progress is what markets want to see.
The dollar advanced on the initial news in the Asian session and extends its gains in the following hours. USD/JPY certainly feels it.
In Japan, elections are held on Sunday. PM Shinzo Abe called the snap vote in order to consolidate his power and take advantage of the poor state of the opposition. Yet during the short campaign, he found himself rivaled by a former member of his own LDP party. Tokyo’s Governor posed a challenge and his lead narrowed in the polls.
However, as the campaign draws to an end, Abe enjoys fresh momentum and may even achieve a “super-majority”: two-thirds of seats, something that allows a change in the constitution.
Strong support implies further fiscal stimulus, and this weakens the yen.
The next level to watch for the yen is the top of the range at 114.50. It is still a bit far off and the pair would first need to break above 113.46. Support awaits at 112.70.
