Japan To Swear In New Prime Minister As GBP/JPY Nears Key Support

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Former foreign minister Fumio Kishida was elected as the new head in Japan for Liberal Democratic Party (LDP) overnight, and he is anticipated to be sworn in as Prime Minister next week. Kishida’s potential impact on the yen has FX traders remains cautiously optimistic.

Kishida emphasized wealth inequality at his first press conference, saying that the country “can’t achieve significant growth if money is concentrated in the hands of a tiny group of individuals.” As a result, Kishida suggested a $30 trillion ($270 billion) expenditure package, demonstrating his support for the island nation’s sustained expansionary fiscal policy.

Investors are cautiously hopeful about Kishida’s impact on the yen, which is currently the second-strongest major currency in the world, trailing only the US dollar. As a result, USD/JPY is moving higher on the day, but this is not reflected in GBP/JPY, which is approaching a critical support level.

Japan: Falling Bond Yields To Boost the JPY

The British pound has been dragged down by growing indicators of a gasoline scarcity in the UK as a result of the post-Brexit shortage of truck drivers. More than 100,000 lorry drivers are thought to be in short supply in the UK, which has hampered the delivery of various items in recent months.

A drop in government bond yields, on the other hand, benefited the non-yielding Japanese yen and put more pressure on the GBP/JPY cross. Because of the Bank of Japan’s yield curve control strategy, the 10-year Japanese government bond yield has remained near zero.

With another election in Japan slated for November, yen traders will want to stay up to date on how the island nation’s political winds are blowing. GBP/JPY is approaching the bottom of its three-month range, and its lowest level in seven months, near 149.00; with the rising 200-day EMA coming in around 149.30, this support level will be critical.

Given how swiftly the pair surged from 140.00 to 150.00 in Q1 (leaving few prominent areas of support or resistance in its wake), a verified break below 1.4900 would pave the way for a quick drop into the mid-140s. GBP/JPY might also rally back toward the top of the range around 153.00 as we move through October if bulls can defend that support level.