Suga Suffers Another Electoral Setback, Tokyo Covid-19 Situation Eyed

USD/JPY pulled back from a new cycle high of Y111.66 last Friday, as broader risk sentiment improved ahead of the weekend. The rate last operates at Y111.11, a handful of pips higher on the day.

• The LDP's Chairman of Election Strategy Committee Yamaguchi conceded that Japan's ruling coalition failed to secure an outright majority in the Tokyo Metropolitan Assembly, even as PM Suga's party replaced Tokyoites First as the largest party in the regional legislature. NHK reported that the LDP had taken 33 seats, its ally Komeito had won 23 seats, while Tokyoites First had secured 31 seats. The disappointing result (we have outlined the broader context before the weekend) will provide yet another political headwind for the Prime Minister.
• Three Olympic athletes have tested positive for Covid-19 after arriving in Japan so far, which added fuel to existing angst about the coronavirus situation in the capital.
• Yomiuri reported that a gov't panel recommended listing train network operator Tokyo Metro on the stock exchange, adding that the central gov't & metropolitan gov't should sell half of their shares before 2028, when they are legally required to start selling them.
• BoJ Gov Kuroda will speak at the Branch Managers' Meeting today. On the data front, focus in Japan turns to earnings/spending data (Tuesday) as well as BoP current account balance & Eco Watchers Survey (Thursday).
• Worth noting that implied USD/JPY volatilities tumbled after the release of U.S. NFP data last Friday, with 1-week tenor printing worst levels since Dec 29, 2020.
• From a technical perspective, bulls look for a clearance of the aforementioned Y111.66 level, which would allow them to set their sights on Mar 24, 2020 high of Y111.71. Bears keep an eye on Y110.42, which represents the low print of Jun 30.