JPY: Sunday's vote could send USD/JPY above 150 - ING

Japan's upper house election on Sunday has turned into a pivotal event for JGBs and the Japanese Yen (JPY), ING's FX analyst Francesco Pesole notes.

USD/JPY has a chance to break 150.0

"The recent jump in long-dated yields signals markets are likely pricing in a decent probability of PM Shigeru Ishiba's coalition losing its majority, which would pave the way for his potential resignation, and for tax-cutting plans by opposition parties to become a reality. On those, opposition leaders have actually tried to calm markets by arguing for the fiscal sustainability of any expansionary measure. There are also risks that delicate US-Japan trade negotiations could stall."

"If this outcome materialises, there should be some extra pressure on long-dated JGBs, which could pave the way for USD/JPY to break 150.0. Ultimately, not all fiscal worries may materialise and the negative spillover into JPY should eventually ease. For the near term, renewed dollar momentum and rising scepticism over the Fed's capacity to cut rates are adding steam to the USD/JPY rally."