Dollar Rallies Against Yen as Japan's New Leader Signals Stimulus

USD/JPY rose sharply overnight to trade up 1% for the week on Tuesday afternoon, trading just shy of 152.00 as the broader dollar rebounded similarly from Friday's lows. The move was amplified by political developments in Japan, where newly elected Prime Minister Sanae Takaichi secured a coalition deal that solidified her government's position. Markets perceive Takaichi as a proponent of stimulus policies reminiscent of 2013's Abenomics that drastically weakened the yen. While her party nomination at the beginning of the month had already gapped USD/JPY higher to 150 from 147.50, uncertainty had lingered after the ruling Liberal Democratic Party lost its coalition partner and their majority was called into question. Yesterday's agreement with a more closely aligned partner resolved this uncertainty, replacing the centrist Komeito party that had broken from the coalition earlier this month. The political stability sent Japanese stocks to new highs while the yen suffered across the board, with Takaichi having successfully staved off opposition efforts to field a unified alternative candidate for prime minister.

Friday's bounce from below 150.00 established critical support that continues to hold on the daily chart, reaffirming the range low for October since the political shift began. Having cleared the 151 inflection point, USD/JPY now trades just under 152.00, with the next significant resistance sitting above 153.00. A break through that level would open substantial upside room, as meaningful resistance doesn't emerge again until above 156.00. Should the pair reverse, support levels to watch include 150.00 and the former base at 149.20. Daily momentum indicators remain neutral as the pair trades near the middle of its two-week range, offering little directional bias. Japanese inflation data Thursday night and highly anticipated U.S. inflation figures on Friday represent the key risk events that could drive the next major move in the currency pair, though political headlines from Tokyo remain a wildcard factor.

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