USD/JPY Fundamental Daily Forecast – Trading Flat Amid Talk of Snap Election

The Dollar/Yen is trading flat early Tuesday amid talk of a snap election – something that Yoshihide Suga, frontrunner to succeed Shinzo Abe in next week’s leadership ballot – signaled in a newspaper interview. A slew of economic releases from Japan and a massive Treasury auction this week also kept prices in check.

At 04:48 GMT, the USD/JPY is trading 106.254, down 0.034 or -0.03%.

Japan’s Suga Signals Chance of Calling Snap Election:  Asahi

Japanese Chief Cabinet Secretary Yoshihide Suga signaled the possibility of calling a snap election if he were to become the country’s next prime minister, the Asahi newspaper reported on Tuesday.

Suga, a frontrunner to succeed incumbent Prime Minister Shinzo Abe, also stressed Japan’s resolve to hold next year’s Tokyo Olympic Games despite the challenges caused by the coronavirus pandemic.

“We’d like to contain the pandemic and make this happen,” Suga was quoted as saying in an interview by Asahi. “There are various, extraordinary merits for Japan to host the Games.”

He also said the views of pandemic experts were important in judging whether COVID-19 was slowing down enough for the next prime minister to call a snap election, according to Asahi.

“There’s no change to my stance as chief cabinet minister that what the public wants from the government most is to focus on measures to deal with the coronavirus pandemic,” Suga was quoted as saying.

“But the prime minister has the right to dissolve parliament (and call snap election). If the next premier decides to call one, that should be the case. If not, it won’t happen,” he said.

The markets have been rife with speculation that Suga, upon becoming minister, may call a snap election to solidify his political grip.

That speculation got a boost after opinion polls showed a jump in voter approval of Suga and of Abe’s achievements.

Suga is expected to pursue his boss’s signature “Abenomics” policies of hyper-easy monetary policy and government spending as Japan grapples with the twin challenges of a coronavirus outbreak and reviving the virus-hit economy.

Short-Term Outlook

One only need to look at the volatility in the USD/JPY on August 28 to know that the election of a new prime minister in Japan is an important event that could have a major effect on the Japanese Yen.

The subsequent rally in the USD/JPY after the steep decline is a direct result of Suga moving to the forefront as the best candidate for the job.

The price action clearly reflects that Suga is widely expected to win the Liberal Democratic Party’s (LDP) leadership election on September 14, a date set after Abe’s decision to step down last month due to a flareup of his chronic intestinal illness. The winner is virtually assured of becoming premier because of the LDP’s parliamentary majority.

Like any other election, however, there are likely to be swings in the polls that could add to the volatility in the USD/JPY. But as long as Suga maintains his lead, the Forex pair is likely to hold steady with the direction of U.S. Treasury yields and risk sentiment guiding its movement.

For a look at all of today’s economic events, check out our economic calendar.