The dollar-yen pair plunged after a sharp rise in the foreign exchange market on Wednesday, 4th.

(1) The observation of Mr. Biden’s superiority (Democratic Party victory in both the House and Senate) spread in the US presidential election, and

(2) The stock market rose sharply against the background of (1) above (development that incorporates dispelling uncertainty about the future of US politics) → Risk preference mood) became a support material, and it surged to a high of 105.35 toward noon Asian time. However, when

(3) the unexpected good fight of US President Donald Trump (a good fight in a fierce battle state such as Florida) was transmitted,

(4) uncertainty about the future of US politics reignited, and the price moved sharply to 104.15 toward the morning of US time. However after that,

(5) the major US stock indexes remained strong (the Republican Party speculates that it will acquire a majority seat in the Senate → the Democratic Party expects to avoid the capital gains tax increase and tightening of regulations → the US mainly on high-tech stocks While the major stock indexes are growing rapidly),

(6) the risk appetite mood has resumed, and at the time of writing this article (as of 4:15 Cambodian time), it is moving to recover to around 104.45. The US October ADP employment statistics released today (results 365,000, forecast 643,000) were dull, well below market expectations, but market reaction was limited.

The dollar-yen pair turned to a rebound after hitting a record high of 106.12 in about three weeks on October 7 and then fell to 104.03 (a low in about a month and a half) on October 29. During this time, in addition to breaking below the Ichimoku Kinko Hyo turning line, the reference line, and the Bollinger mid-band, the Ichimoku Kinko Hyo three-role reversal and the perfect order for the moving average line, which suggest a strong selling signal, were also established. It has a chart shape that impresses with “weakness of formation” (it dropped to 104.15 yesterday).

From a fundamental perspective,

(1) differences in the direction of US-Japan monetary policy,

(2) uncertainty about the future of US fundamentals,

(3) concerns about intensifying conflict between the United States and China, and

(4) uncertainty about the future of US politics (against the outcome of the US presidential election). Uncertainty continues),

(5) Geopolitical risks surrounding the Korean Peninsula, the Middle East, Hong Kong and Central Asia,

(6) Spread of new coronavirus infection (restart of lockdown mainly in Europe and the United States → Uncertainty about the future of the Western economy → Rekindling the risk avoidance mood ),

(8) Uncertainty about the future of the Japanese economy (Uncertainty about the future of the Japanese economy → Concerns about deflation → Rising real interest rates in the yen → Strong yen), (8) Deviation between the real economy and stock prices (risk of unwinding excess liquidity),

(9) There are a lot of uncertainties reminiscent of the decline in the dollar-yen market, such as the observation of a delay in additional economic measures (fiscal cliff risk) and the expansion of the US budget deficit (risk of downgrading US bonds).

As mentioned above, the dollar-yen exchange rate is wary of the risk of decline, both technically and fundamentally. While looking at the follow-up report on the US presidential election, headlines on the new coronavirus, trends in Western stocks and long-term interest rates in Europe and the United States, and the results of major US economic indicators (number of new jobless claim in the US and FOMC), we anticipate a decline in the dollar-yen market as the main scenario (the US presidential election is an unexpected close battle, and it is expected that unstable market development will continue while staring at the ballot counting bulletin.

In addition, the future of US politics is uncertain. Since it has not been wiped out, the US FOMC scheduled tonight is expected to keep the current policy unchanged, and there are no particular surprises).

Today’s forecast range: 103.50-105.50

Analyzed by: Mr. Naoto Arase,Independent Analyst