3 September 2025,05:56
Daily Market Analysis
3 September 2025, 05:56
*Political Shock Weakens Yen – The resignation of top LDP figures undermines Ishiba’s leadership, raising fears of looser fiscal policy.
*Policy Divergence Widens – Surging U.S. yields and the BoJ’s dovish stance keep Japan far behind its global peers.
*Downside Risks Dominate – Without a hawkish BoJ pivot or political stability, speculative selling is set to deepen yen weakness.
The Japanese yen slid to a one-month low as political turmoil at home compounded the pressure from rising global yields. The sharp move followed a surge in U.S. Treasuries, which widened rate differentials and reinforced the yen’s role as a funding currency in carry trades. A weak 10-year JGB auction added fuel to the fire, with the bid-to-cover ratio plunging to 2.02x from 2.87x, while the accepted yield jumped to 1.619%. The lackluster demand underscored fading investor appetite for Japanese debt, forcing secondary market yields higher.
Domestically, markets were rattled by the sudden resignation of LDP Secretary-General Hiroshi Moriyama and other senior powerbrokers, a blow to Prime Minister Ishiba’s fragile leadership. The political vacuum stoked concerns about looser fiscal discipline, with investors bracing for higher bond issuance to fund expansionary spending. These worries dovetailed with a broader global bond sell-off, where surging gilt and Treasury yields spilled into Japanese markets, sending the 30-year JGB yield to 1.975%, its highest since 2013.
The Bank of Japan offered little reassurance. Deputy Governor Himino repeated that rate hikes could be appropriate if conditions improve, but his heavy emphasis on caution — especially over the uncertain fallout from U.S. tariffs — was interpreted as dovish. Markets concluded that the BoJ remains in no hurry to tighten policy, leaving inflation risks to be reflected in the long end of the curve. The combination of weak auction demand, dovish guidance, and political fragility has created a self-reinforcing pressure on yields.
Caught between entrenched monetary divergence, deepening domestic instability, and rising bond-market stress, the yen’s path of least resistance remains lower. Until the BoJ delivers a decisive hawkish pivot or Japan’s political landscape stabilizes, speculative short positioning is likely to dominate, keeping the currency under heavy pressure.
USD/JPY is trading near 148.55 after staging a strong rebound from the 146.65 area, where buyers defended key support. The pair is now consolidating just above the 148.00 level, with the next resistance sitting at 149.50. A break higher could open the path toward the major barrier at 150.90, while failure to hold above 148.00 risks pulling the pair back toward 147.46 and 146.65.
Momentum signals lean constructively. The RSI stands at 65, showing strengthening bullish momentum without yet entering overbought territory. Meanwhile, the MACD remains in positive alignment, with both lines above the zero level and green histogram bars supporting the upward bias.
Overall, USD/JPY maintains a bullish tilt following its recent rebound, with short-term focus on whether bulls can force a retest of the 149.50–150.90 resistance zone.
Resistance level: 149.50, 150.90
Support level: 148.00, 146.65
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