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The September Japanese Yen is holding steady this morning with a slight bias to the upside after Japanese Finance Minister Yoshihiko Noda was chosen to succeed Prime Minister Naoto Kan. This is Japan’s fifth prime minister in six years and the third premier since the party took power two years ago. This new selection came about after incumbent Naoto Kan announced his resignation last week.
Surprisingly the Yen is trading better despite the fact that Noda has overseen three currency-market interventions in the past year. Given the current economic situation and the price of the Yen, expectations are for this trend to continue during his term. If anything, the election of Noda ensures a smooth transition of leadership because of his link to the interventions.
Since there wasn’t increased volatility or range expansion following the release of Noda’s selection, one has to conclude that the move was expected. This didn’t help trader uncertainty which appears to be gripping the market at this time.
Trader indecision appears to be over whether the new prime minister will be able to address the economic risks facing the nation. The key risk is being able to pay for the reconstruction of the country following the tsunami, earthquake and near-nuclear disaster. The solution to increase demand for exports seems simple, but the high priced Yen is making this difficult. Obviously developing teamwork between the government and the Bank of Japan is going to be a priority.
The BoJ is going to have to increase its efforts to turn the economy around in order to right the ship. At this time, however, the central bank seems to have its hands full intervening to depress the value of the Japanese Yen.
Technically, the September Japanese Yen is trading inside of a tight range defined as 1.3173 to 1.2871. The 50 percent to 61.8 percent retracement zone of this range is providing near-term resistance at 1.3022 to 1.3058. Additional resistance this morning is coming in at Friday’s high at 1.3075, a former top at 1.3113 and the main top at 1.3173.
Market to Watch Today
The September Japanese Yen rallied sharply during the early part of August when global equity markets firmed. On Friday, the Yen posted a strong gain after Fed Chairman Bernanke provided an optimistic outlook for the economy and hinted that it would consider additional aid at its September meeting. Firmer equity markets overnight may also be providing support for the Yen this morning.
Clearly the new Japanese government is going to try to dampen the Yen’s appreciation since the new Prime Minister is the former Finance Minister who guided the interventions of the past. The key is whether the BoJ has the fire power to fight the Yen’s appreciation which may begin another leg higher if equity markets once again start posting strong gains. Although its threats continue to keep a lid on the Yen, strong demand for higher yielding assets and a weaker Dollar may provide strong support for the Yen today.
