11 July, AtoZ Markets – Prime Minister Shinzo Abe's coalition won 2/3 rds of the votes in an election on Sunday for parliament's upper house and is expected to pursue Abenomics more strongly. This Victory comes despite concerns about his economic policies and plans to amend the nation’s post war constitution for the first time.
With signs that Abenomics are failing, the government plans to compile a post election financial stimulus package that can exceed 10 trillion yen ($99 billion). Mr. Abe did not say exactly how big the package might be. Furthermore, he mentioned that he would reshuffle his cabinet but did not provide further details. There has been speculation among market participants that Abe might replace Finance Minister Taro Aso.
This morning, PM Abe has confirmed preparation of a new economic stimulus tomorrow, sending JPY to fall. These economic steps should encourage future investment and establish 21st century infrastructure. The strategy aims to make the most out of BoJ zero interest rate environment. The government will also proceed with labour reforms and Japan has a need to strengthen international cooperation for market stability.
The election results and proposed reforms have given a flip to Japan stocks. Nikkei 225 is extending its gains, last at +4.5%, while the Japanese Yen continues is falling materially across the board.
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Technical USDJPY analysis
Following the fundamental developments, USDJPY broke above the dynamic resistance of 50 hour SMA and rallied higher reaching 200 SMA.
Although the underlying trend remains bearish, the Yen should first reach Fibonacci 161.8% retracement level at 102.4 before any confirmed downside could resume. Worth to mention that H1 failure to close above the 200 SMA provides additional concerns, warning of potentially erratic price movement.
Nonetheless, should the pair clearly break above the 102.4 resistance level, increased buyer pressure would likely carry it higher towards Fibonacci 150% retracement level at 103.
Meanwhile, support levels fall on the dynamic 200 hour moving average near 101.85, custom Fibonacci 188% retracement level at 101.1, and further out at 100.5.
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