USD / JPY returns towards 114.00

• USD / JPY has fallen back to the 114.00 level from the Asian session highs of 114.50.
• The pair was initially boosted after Japan’s prime minister’s LDP Kishida party won a surprise majority in general elections over the weekend.
• The focus now shifts to key global events such as the FOMC meeting, US jobs, and ISM services data.

During the Asian session on Monday, the USD/JPY It reached its highest level in about a week and a half, just below 114.50, which means it was only about 20 pips from the yearly high touched about two weeks ago around 114.70. However, during European and US trading, the pair has pulled back and is currently flirting with the 114-00 level, which means that it is currently trading, leaving it roughly in the midpoint of its 113.20-114.70 range in the last two. or three weeks.

Surprising most of the PLD

The big news outside Japan in recent days has been the result of the general elections held on Sunday; Prime Minister Kishida’s PLD party fared better than feared and, contrary to expectations, managed to maintain a majority in the lower house of parliament, albeit with fewer seats than it held in the period just ended. The news has allayed fears that Kishida was on track for a short stint as prime minister, as had been the case with his predecessor Yoshida Suga, and keeps the prospect of further fiscal stimulus on the table before the end of the year. Therefore, Japanese stocks made substantial gains on Monday, with the Nikkei 225 gaining north of 2.5% on the session; According to some traders, the risk was in the tone of the Japanese trading session, which also appeared to have a positive spill-over effect on risk appetite, it was touted as a peso on the Japanese yen early Monday.

Focus shifts to state-side events

With the election out of the way, the focus on the Japanese markets and for the Japanese yen returns to global dynamics. The biggest events on this week’s calendar will be upcoming Fed and Bank of England meetings, as well as US jobs and services ISM data. The US ISM Manufacturing PMI for October was released on Monday which did not have much of an impact on currency markets (including USD / JPY). But the survey hinted at current economic issues in the US, such as that economic growth, although slower, remains strong, as is demand, but that supply bottlenecks continue to hold back activity. economic growth by slowing down manufacturing output, while input costs remain steeply high.

The evolution of yields under observation

As has been the case in recent months, USD / JPY is likely to follow the evolution of the US bond markets, particularly any changes in the US and Japan 10-year yield spreads. . The 10-year US dollar fell below 1.60% last week and has since struggled to regain ground as inflation expectations recede from recent highs; 10-year yields are back to just over 2.50%, having been close to 2.70% early last week. But real US yields have rebounded in recent days, mainly offsetting falling inflation expectations, with the US 10-year TIPS yield now at around -0.95%. , having been as low as -1.15% just four sessions ago. If the FOMC proves aggressive and strong US data this week can support a further rise in TIPS without creating too much downside to inflation expectations, then this should drive 10-year yields higher again, perhaps from It returned to recent highs around 1.70%, which would probably be enough to push USD / JPY towards the recent highs above 114.00.

Technical levels