EBC Markets Briefing | Yen plunges after ruling coalition loses majority

The yen touched a three-month low on Monday as Japan's ruling coalition losing its parliamentary majority could likely slow future interest rate hike.

Liberal Democratic Party and coalition partner Komeito took 209 of 465 lower house seats, public broadcaster NHK reported, marking their worst result since it briefly lost power in 2009.

The yen’s rapid decline this month has some currency strategists suggesting a fall to as low as 155 or 160 in the coming weeks. Again official intervention conducted earlier this year is more likely to be wasted.

The median forecast of the yen level that would possibly trigger intervention was at exactly 160, according to a Bloomberg survey. BofA and Mizuho Securities are among those expecting the yen to hit the level.

But the market is divided over how quickly the yield gap between the US Treasuries and Japanese government bonds may narrow with robust US data and caution from the Fed about cutting interest rates.

Treasury yields hit a three-month high last week as investors weigh Trump’s return to the White house. Market pricing puts a 97% probability on the Fed cutting rates by only 25 bps next month.

The yen is below the 200 SMA with a slightly oversold RSI condition. As such we see a potential rebound in it when approaching the resistance around 155.00.

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