The Japanese yen is rising due to the political drama in Japan

The Japanese yen stabilized on Monday after posting huge gains on Friday. USD/JPY is trading at 142.43 in the European session, up 0.15%.

New Prime Minister Ishiba says he will call early elections

The yen rose sharply on Friday, although this was more in response to political than economic developments. The ruling Liberal Democratic Party (LDP) surprisingly elected Shigeru Ishiba as its new leader and he will take over as prime minister on Tuesday. Ishiba’s victory was a surprise as Economy Minister Sanae Takaichi was expected to win the race to lead the LDP.

Financial markets reacted strongly – the Japanese yen rose 2.1% on Friday, while the Japanese stock market is significantly in the red today. Takaichi is a strong supporter of lower interest rates, while Ishiba supports the Bank of Japan’s moves toward normalization. Ishiba said today that he would call a snap election on October 27, which he would almost certainly win. Ishiba’s election would be a green light for the BoJ to tighten monetary policy further, making the yen more attractive to investors.

Overshadowed by the political drama were Monday’s Japanese data, which were mixed. Industrial production fell 3.3% month-on-month in August, after rising 3.1% in July, well below the market estimate of -0.9%. Year-on-year, industrial production fell 4.9%, compared with a 2.9% increase in July.

There was better news in retail sales, which rose 0.8% month-on-month in August, up from 0.2% in July and a three-month high. Retail sales rose 2.8% annually, compared with a revised 2.7% in July and above the market consensus of 2.3%.

US core PCE falls to 0.1%

Inflation remains under control and this was confirmed on Friday by the US core PCE price index, the Fed’s preferred inflation indicator. The index rose 0.1% month-on-month in August, a three-month low. This was below the 0.2% in July and below the market estimate of 0.2%. Annually, core PCE rose to 2.7% after three consecutive months of 2.6%, in line with expectations.

USD/JPY Technical

• USD/JPY previously tested resistance at 142.86. Above there is resistance at 143.19
• There is support at 142.26 and 141.93