USD/JPY. Abe leaves, "abenomics" remains: the yen is under pressure again

The yen is running down compared to the dollar again. The market is being practical now as the emotion about the unexpected resignation of Prime Minister Shinzo Abe subsides. This decision is not favorable to the Japanese currency because they are against the background of a corrective recovery of the greenback. Added to that, the Japanese political Olympus reported on the latest news that the course "abenomics" will continue as the changes are still not expected until the election of the new head of the government. USD/JPY traders should focus on the movement of the US currency since it is going strong in the market.

As per Japanese events, they will have a new Prime Minister by the end of the month and on September 14, the members of the democratic party will elect a new leader that will automatically be a contender for the post of the head of government. The parliament will consider the candidacy and pass its verdict on September 16. According to the results of the last elections, the ruling party controls the majority in both houses of Parliament. So, all other approval mechanisms will be considered formal after an internal party vote.

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General Secretary of the Cabinet of Ministers of Japan Yoshihide Suga - the main contender for the high post said in a report that he will follow the steps of Prime Minister Shinzo Abe. Other contenders are also "from the political cage" of Abe such as former Japanese foreign Minister Fumio Kishida, who is considered as a "moderate politician" and a long-time supporter of pensioner Shinzo Abe, has a good chance of being elected. According to the experts, the country's economic course will radically change if one of the above mentioned candidates will win the election. The "abenomics" will continue to be at the forefront. Therefore, analysts mostly discuss the prospects for foreign policy changes. For example, in the context of the fate of the Kuril Islands or the prospects for difficult relations between Japan and South Korea.

Thus, when the market learned the names of the most likely successors of Shinzo Abe, figuratively speaking, "let go" of this situation, focusing on other fundamental factors. It is also worth considering one more nuance – the powers of the Bank of Japan Governor Harukiko Kuroda will not end soon (in 2023). So far, he has not expressed any intentions to leave his position ahead of schedule. So in terms of monetary policy, we should also not expect changes, at least in connection with the change of the head of the ruling party and, accordingly, the government.

According to the lower line of the Bollinger Bands indicator on the daily chart, the USD/JPY pair fell to the support level of 105.21. At this stage, the southern momentum faded, as the bears had no additional arguments for further price reduction. While the US dollar began to recover from their fall for several days in the market. After a high-profile speech of Jerome Powell, the greenback has been dipping down since last Thursday. This factor will continue to haunt dollar bulls for a long time, but at the moment the greenback is correcting after a multi-day decline.

The immediate reason for the strengthening was the us ISM index, which was much better than the forecast values. At the same time, the market yesterday completely ignored the negative ADP report, which showed a minimal increase in the number of employees (just over 400 thousand with a forecast growth of 1.5 million). A month ago, ADP specialists announced a similar result but the official increase in the number of people employed in the non-agricultural sector in July was at the level of 1 million 700 thousand.

Definitely, the Nonpharmes tomorrow will swing the pendulum in one direction or another. The dollar will either get additional support or will be under the wave of sales. As of the moment, the US currency can afford a correction including the pair with the yen which demonstrates absolute "spinelessness" and dependence on the greenback.

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Based on the chart, the pair is now at the lower limit of the Kumo cloud. Long positions should only be considered if this target is exceeded. In this case, buyers of USD/JPY will open the way to the upper line of the Bollinger Bands indicator on the same time frame such as the level of 106.90 and to the main resistance level of 107.30. In general, the pair remains bullish, even if the price declined. The current corrective recovery of the greenback allows USD/JPY bulls to return the pair to the familiar price range of 106.00 - 107.50.

The material has been provided by InstaForex Company - www.instaforex.com