USD/JPY to plunge amid uncertainty about PM Abe's replacement

USD/JPY has been recovering from the dual blow of Abe's resignation and Fed dovishness. The next moves depend on Japanese politics, US figures and US yields, Yohay Elam, an analyst at FXStreet, reports.

Key quotes

“A shift from a Trump lead to a Biden victory – as Democrats lean toward voting from afar – may be contested by the incumbent. The mere thought of a constitutional crisis would weigh on markets.” 

“Investors already have second thoughts about the stock market rally, and rising fears may exacerbate the falls, pushing the dollar down against the yen.”

“Weekly jobless claims are of interest on Thursday, and another significant drop would push the dollar higher. Consumer Price Index statistics for August are eyed on Friday – yet they carry less weight than beforehand due to the Fed's new focus.”

“Abe is on his way out – and the race to succeed him is still open. Suga, Abe's right-hand man, is the leading candidate and markets seem to have priced his victory in. The veteran politician will likely pledge more fiscal support and also encourage the Bank of Japan to keep the foot on the pedal. Abe's nomination of Haruhiko Kuroda to lead the BoJ led to large bond purchases and a weaker yen. However, in the week before the contest, markets may have second thoughts and doubts if Suga can clinch the top post – or maybe surpassed by a more hawkish candidate. Worries about a weaker government could lead to safe-haven flows into the yen.”