USD/JPY: Bias is to sell rallies – OCBC

The LDP leadership campaign is underway, with election scheduled on 4 October. 5 names have surfaced but the race is tight between Sanae Takaichi and Shinjiro Koizumi. Asahi polls showed Takaichi leading with 28% and Koizumi at 24%. Pair was last seen at 148.70 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is mild bullish

"We expect JPY weakness (due to politics) to reverse when uncertainty fades. Wage growth, broadening services inflation and upbeat economic activities in Japan should continue to support BoJ policy normalisation. The next meeting is on 30 Oct and another one in Dec. Markets have yet to fully price a hike."

"Moreover, recent BoJ minutes revealed that one member said BoJ should not be overly cautious and missed an opportunity to raise rate. Another member indicated that it is important for the bank to raise rates in a timely manner as rapid rate hikes later would inflict considerable damage on the economy. Recall at the last BoJ meeting, 2 members voted for a rate hike.'

"Fed-BoJ policy divergence should continue to underpin USD/JPY direction of travel to the downside. USD/JPY saw mild pullback this morning, in reaction to BoJ minutes (from Jul meeting). Daily momentum is mild bullish while rise in RSI moderated. Resistance at 149, 149.80 levels. Support at 147.60 (21, 50 DMAs)."