USD/JPY Soars After Japanese Election

Post-election musings prevented the yen from capitalising on a wider flight to safety on Monday. First, a resounding victory of Japan's ruling coalition in the Upper House election held over the weekend raised the odds of stabilisation in policymaking, with the government having three years of peace until the next poll, which lent support to local equity markets. Second, BoJ Gov Kuroda reaffirmed his familiar stance on monetary policy, despite speculation that the death of ex-PM Abe might reduce political support for the Bank's ultra-loose approach in the longer term. Third, and related to the above, some suggested that the ruling bloc's strong performance in the latest election was testament to Japanese voters' relative tolerance to rising prices, compared to other countries where inflation has created a significant drag on the approval of incumbent authorities, which gives the BoJ a green light for staying the course.

• Demand for USD/JPY emerged after the Tokyo fix, taking the pair above its prior cyclical high located at the round figure of Y137.00. Purchases resumed in Europe, with the rate topping out at Y137.75, its highest point since 1998.
• USD/JPY 1-month risk reversal rose sharply, reaching its best levels since Jun 23. It remains below par since mid-June.
• The pair drew further support from the dollar side, as regional participants played catch up with a firmer than expected NFP report released out of the U.S. last Friday.
• Spot USD/JPY last changes hands at Y137.34, down 9 pips on the day. A renewed push higher through yesterday's high of Y137.75 would expose 1.618 proj of the Feb 24 - Mar 28 - 31 price swing at Y138.56. Bears need a retreat under Jun 23 low of Y134.27 to get some reprieve.
• Japan's PPI will be out later today, with final industrial output coming up Thursday.