USD/JPY grapples with more declines as waylaid Yen crumbles

• USD/JPY faced sharp declines on Monday, closing a bullish weekend gap.
• Japanese PM Shigeru Ishiba announced his resignation over the weekend.
• Dovish BoJ prospects are now weighing on the Yen.

USD/JPY whipsawed on Monday, driven into fresh volatility by the surprise resignation of Japanese Prime Minister Shigeru Ishiba. With the Japanese government now pivoting to install a new PM, odds that the Bank of Japan (BoJ) will begin lifting interest rates have fallen even further, bolstering Asian stocks and propping up Yen demand.

USD/JPY opened the week trading near 148.25, rebounding from last week's late backslide following further declines in US employment figures. The Yen quickly pared intraday losses, closing the weekend gap and pushing USD/JPY back down below 147.50. The Dollar-Yen pairing remains trapped in medium-term congestion, trading between the 200-day and 50-day Exponential Moving Averages (EMA) near 147.90 and 147.20, respectively.

Japanese PM resigns after securing trade tariff reductions

Now-former Japanese PM Shigeru announced that he had already been planning to resign from his post following his party's stunning defeat in election polls across Japan earlier this summer. However, the PM decided to keep his decision private until after settling trade details with the Trump administration. After convincing US President Donald Trump to drop tariffs on Japanese goods from 25% to 15% last week, PM Shigeru decided it was time to turn over control of his party and Japan's PM office.

Despite headline Japanese inflation metrics holding steadily above target levels for an extended period of time, the BoJ has been quick to latch onto any chance to push out interest rate increases. Turnover in the Japanese government will likely be more than enough reason for the BoJ to continue to hold interest rates in place for the time being.

USD/JPY price forecast