Its election day in Japan what it means for USDJPY and the Nikkei

Lost in the noise, one of the more positive stories for markets in recent months comes to its conclusion this afternoon as the Liberal Democratic Party (LDP) of Japan votes for a successor to replace Yoshihide Suga as the LDP leader and by extension, the new Prime Minister of Japan.

Polls are neck and neck between the three primary candidates, Taro Kono, Sanae Takaichi, and Fumio Kishida. All three have promised to put together a stimulus package to help regain the growth momentum in an economy struck by the third wave of Covid during July and August.

Taro Kono is the favorite contender amongst the Japanese public. However, his left-leaning views on social issues and his opposition to nuclear power put him offside with the party's conservative elders.

If elected, hard-line conservative Sanae Takaichi would become Japan's first female Prime Minister. Her policies around fiscal expansion and monetary easing are the most aggressive of the three leading contenders and would be the most beneficial for USDJPY and the Nikkei.

The third genuine contender is Fumio Kishida. Kishida is a moderate, and although he has received only modest support in the polls, he is viewed as the safest choice by party members.

After breaking above trend channel resistance at 110.10 noted last week, USDJPY has since rallied strongly to make a new cycle high this morning at 111.68.

Aside from the technical drivers mentioned above, the rally has been aided by higher U.S. yields and rising energy prices as Japan is totally reliant on energy imports.

From here, a break and daily close above 111.66ish would open the way for USDJPY to test the next resistance zone at 112.20/40 before a move towards medium-term resistance 114.50ish. Stops on long positions should be raised to 110.70.

In our last article on the Nikkei, after a good surge higher it was suggested to take profit on Nikkei long positions and look to rebuy dips. "After the Nikkei futures almost reached the 30715 high/target yesterday, the market is displaying signs of being overbought in the short term. As such, we would consider closing longs here and look to rebuy the Nikkei into weakness in coming weeks."

The Nikkei appears to be tracing out Wave c of a three-wave pullback that targets a move back into the 30,000/28,000 support region. Should signs of basing emerge within this support region, long Nikkei positions should again be considered.

Source Tradingview. The figures stated areas of September 29, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.