USD/JPY Weakens after testing 89

By Fast Brokers – The USD/JPY is retreating after testing its psychological 89 level earlier in the wake of upper house elections.  The DPJ did worse than projected and confirmed Kan’s declining approval rating.  The DPJ’s disappointing showing means Kan must now forge a coalition in order to pass fiscal reforms aimed at reigning in Japan’s spiraling deficit.  Investors reacting by selling off the yen and S&P already warned that Japan is at risk of having its debt downgraded if parliament can’t pull together and pass effective measures cutting the budget deficit.  Speaking of which, parliament also rejected Kan’s proposal to double the consumption tax to 10%.  The veto could prove to be a step backward in the eyes of creditors and puts Kan in the hot seat with his re-election around the corner in September.  That being said, political uncertainty could continue to linger in Japan and keep the yen from appreciating too quickly.  However, the USD/JPY clearly faces many technical obstacles to the topside and this weekend’s upper house elections have not significantly altered the currency pair’s downward trajectory for the time being.  On a positive note, China’s trade balance revealed a larger surplus than anticipated, indicated export demand is healthy and China’s economy should continue to perform well despite government efforts to reign in real-estate prices.  Investors now turn their attention to Alcoa, which kicks off the U.S. earnings season after the bell today.  If U.S. earnings disappoint then this could weigh on the USD/JPY and risk trade as a whole as investors head towards the yen and dollar for safety.  That being said, we’ll have to see how earnings season materializes over the next week or two.  Japan will be quiet on the data wire tomorrow, though investors will receive key data points from the EU, UK, and U.S.