USD/JPY falls as the yen gains on Abe's resignation as prime minister
Since Powell's speech yesterday, the pair has pretty much followed the trajectory in bond yields and after a brief nudge lower post-Powell, the pair rose from 105.60 to a high earlier today of 106.95 - just short of testing its 100-day moving average @ 107.00.
But Abe's resignation has thrown a bit of a curveball into yen trading ahead of the weekend, as the currency strengthened amid a risk-off wave in Japanese markets as the Nikkei tumbled on the news as well.
For USD/JPY, the pair dropped from around 106.70 to a low of 106.11 but buyers are keeping a defense of the 100-hour MA (red line) @ 106.20 for the time being.
That means the near-term bias is still more bullish as buyers are holding on to support at the key level above with further support then seen closer towards the 105.95-00 region, near the 200-hour MA (blue line).
For now, there may be pressure on yen pairs on the back of some uncertainty surrounding the political future of the country and if Abe's successor will bring about major changes to economic policies i.e. 'Abenomics' and the BOJ monetary policy outlook.
The consensus argument is that the relative uncertainty is likely to be short-lived as the Japanese economy is in a rather fragile state following the coronavirus pandemic and no lawmaker - and even the BOJ - will be willing to risk things at the moment.
As such, there is a strong case that the relative strength in the yen may not last and as long as bond yields are elevated as per what we have seen post-Powell, that should underpin yen pairs in the bigger picture.
Back to USD/JPY, I'd be more convinced of a further drop if we do see the 200-hour MA @ 105.95 breached over the next few sessions. Otherwise, the relative softness in Treasuries so far is also suggestive that the downside in the pair may not extend too much.
