USD/JPY rebounded from the floor of its 146-149 range last week. During last week’s central bank meetings, the Fed was not dovish enough to extend its rate cut outlook into 2026, while the Bank of Japan maintained its hiking bias but refrained from affirming a hike in October or December. However, USD/JPY slipped below 148 overnight on US President Donald Trump’s continued efforts to influence the Fed. First, his appointee, Fed Governor Stephen Miran, said he would keep dissenting for 50-bps cuts at the subsequent FOMC meetings. He believed that interest rates were very restrictive and should be 2% lower than where they were before last week’s 25-bps cut, arguing that tariffs, immigration restrictions, and tax policy changes had pushed down the neutral rate to near zero. Second, the Supreme Court has asked Fed Governor Lisa Cook to file her response to Trump’s petition to fire her on the grounds of alleged mortgage fraud by September 25. 
In the near term, markets view the Liberal Democratic Party (LDP) leadership election on October 4 as a binary outcome for the USD/JPY. Out of the five candidates running, the JPY’s focus is on two frontrunners who embody starkly different policy directions. The market views a victory by Shinjiro Koizumi as JPY-positive due to his reformist stance, emphasis on fiscal discipline, and willingness to align with the BOJ’s policy normalisation. By contrast, a win by Sanae Takaichi would likely be JPY-negative, as she favours a pro-growth agenda that embraces aggressive fiscal stimulus and continued monetary accommodation. Although Takaichi enjoys stronger public support, the ballot will be decided by party Diet members and rank-and-file LDP members who appear to favour Koziumi. Still, whichever candidate prevails inherits a weakened LDP that lost its majority in both chambers of parliament. That makes party unity and coalition-building essential to restore stability to a fragmented political base – a challenge that could temper how much their economic agenda translates into concrete action. For now, the likely bias is for USD/JPY to hold in the lower two-thirds of its 146-149 range.
Quote of the Day
“It is always with the best intentions that the worst work is done.”
Oscar Wilde
September 23 in history
UK Prime Minister Liz Truss and Chancellor Kwasi Kwarteng proposed an unfunded “Growth Plan” that erupted into the UK mini-budget crisis in 2022.
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