The USD/JPY dropped sharply last week as investors began pricing in a Joe Biden victory in the U.S. presidential election and the prospect of more gridlock in the U.S. Congress. The news meant that the Biden administration would have a hard time fulfilling campaign promises like higher taxes, but it also signaled less emphasis on trade wars. Furthermore, expectations for a massive U.S. fiscal stimulus package were dampened.
Removing massive coronavirus stimulus from the agenda sent bond yields sharply lower in anticipation of less borrowing and more quantitative easing from the U.S. Federal Reserve. The plunge in long-term U.S. Treasury Bond yields made the dollar a less-attractive investment, driving up demand for the Japanese Yen.
The volatility in the Japanese Yen also rattled the Bank of Japan and government officials.
Japan’s PM Suga Says Stable Currency Moves ‘Extremely Important’:
Japanese Prime Minister Yoshihide Suga on Friday vowed to work closely with overseas authorities to keep currency moves stable, signaling his readiness to respond to any Yen spike that threatens to derail the country’s fragile economic recovery.
“Exchange-rate stability is extremely important,” Suga told parliament when asked how Japan will respond to any changes a new U.S. administration could make to its dollar policy.
“We will respond appropriately on markets while keeping in close contact with overseas authorities,” Suga said. He declined to comment on specific currency levels or moves.
Kuroda Says BOJ Will Help Keep FX Moves Stable:
Bank of Japan Governor Haruhiko Kuroda said the central bank will work closely with financial authorities to keep currency moves stable, adding he was closely watching how the outcome of the U.S. presidential election could affect markets.
“It’s extremely important to keep exchange-rate moves stable,” Kuroda told an online meeting with business leaders in Nagoya, central Japan, last Wednesday.
USD/JPY Long (Buy)
ENTER AT: 103.47