USD/JPY Price Forecast: US election-led rally beyond 154.00 sets the stage for additional gains

• USD/JPY jumps to a multi-month top as the Trump enthusiasm provides a strong boost to the USD.
• Surging US bond yields, the risk-on environment and the BoJ uncertainty weigh heavily on the JPY. 
• The supportive fundamental backdrop and the technical setup support prospects for further gains.

The USD/JPY pair rallies over 300 pips intraday and jumps to its highest level since July 30, around the 154.35-154.40 area in the wake of the US presidential election results, which showed that Republican nominee Donald Trump is leading the race. Adding to this, Republicans are projected to take the majority of the House after securing the Senate, triggering the renewed upside in the US Dollar (USD) and providing a strong boost to the currency pair. 

Meanwhile, a Trump presidency revives fears about the launch of potentially inflation-generating tariffs. This, along with deficit-spending concerns and bets for a less aggressive policy easing by the Federal Reserve (Fed), pushes the US Treasury bond yields sharply higher. In fact, the yield on the benchmark 10-year US government bond surges to its highest level since July 2 and contributes to driving flows away from the lower-yielding Japanese Yen (JPY).

Meanwhile, the “Trump trade” triggers a fresh leg up in the equity markets and turns out to be another factor undermining the safe-haven JPY, which fails to gain any respite from the hawkish Bank of Japan (BoJ) meeting minutes. The Japanese central bank reiterated that it will continue to hike interest rates if economic & price forecasts are met. Investors, however, seem convinced that Japan's political landscape could make it difficult for the BoJ to tighten policy further. 

This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the upside. Hence, any corrective decline could be seen as a buying opportunity and remain limited in the absence of any relevant market-moving economic releases from the US. As investors assess the US election results, the focus will shift to the highly-anticipated two-day Federal Open Market Committee (FOMC) monetary policy meeting starting this Wednesday. 

The US central bank will announce its decision on Thursday and is widely expected to lower borrowing costs by 25 basis points. Investors, meanwhile, will closely scrutinize the accompanying policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference for cues about the future policy outlook. This, in turn, will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. 

Technical Outlook

From a technical perspective, Wednesday's strong move up comes on the back of the overnight resilience below the very important 200-day Simple Moving Average (SMA). This, along with the fact that oscillators on the daily chart are holding comfortably in positive territory and acceptance above the 154.00 mark, supports prospects for a further near-term appreciating move for the USD/JPY pair. Hence, a subsequent move up towards the 154.70-154.75 intermediate hurdle, en route to the 155.00 psychological mark, looks like a distinct possibility. The next relevant hurdle is pegged near the 155.20 area (July 30 high), above which spot prices seem more likely to extend the recent positive momentum from the September monthly swing low.

On the flip side, the 153.50-153.45 horizontal zone now seems to protect the immediate downside ahead of the 153.00 round figure. Any further decline could attract dip-buyers near the 152.45-152.40 area, which, in turn, should help limit the downside for the USD/JPY pair near the 152.15 region. This is closely followed by the 152.00 mark, which if broken decisively might expose the 200-day SMA resistance breakpoint, now turned strong support, near mid-151.00s. The latter should act as a strong near-term base and a key pivotal point for spot prices.

USD/JPY daily chart