USD/JPY: Bias for downside play – OCBC

USD/JPY slipped as Trump trades unwind. Near term, election noises in US and Japan may cloud the outlook for JPY but more likely than not, election uncertainty in US and Japan should come to pass. Pair was last seen at 152.41, OCBC’ FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is mild bearish

“BoJ is expected to uphold central bank independence and Governor Ueda had earlier said that the current political situation in Japan wouldn’t stop him from lifting rates if prices and the economy stay in line with BoJ’s forecast. On the data front, Recent labour market report also pointed to upward wage pressure in Japan with 1/ jobless rate easing, 2/ jobto-applicant ratio increasing to 1.24; 3/ trade unions calling for another 5-6% wage increase at shunto wage negotiations for 2025.”

“Wage growth pressure remains intact, alongside broadening services inflation and this is supportive of BoJ normalizing rates. We still look for USD/JPY to fall into 1H 2025 as Fed and BoJ continue to pursue policy normalisation. This should continue to underpin the broad direction of travel to the downside. One risk to watch is potential Trump tariff on the world as that may impact global trade, growth and pose risks to US disinflation journey and Fed policy.”