Uncertainty about Japan's fiscal outlook continued to dent the yen's appeal, with concerns that new Liberal Democratic Party leader Sanae Takaichi might pursue a more expansionary fiscal policy, potentially further delaying the Bank of Japan's (BoJ) interest rate hike plans.

The yen rebounded slightly after hitting a new low since February this week, but the overall trend remains weak. The market generally believes that Sanae Takaichi, as the successor to former Prime Minister Shinzo Abe's policies, tends to maintain high fiscal spending and a loose monetary environment, which has exacerbated external concerns about Japan's fiscal health.

Her economic advisers Etsuro Honda and Takuji Aida also hinted that the Bank of Japan may tolerate one more rate hike by the end of this year or early next year, but will not rush to tighten policy.

Meanwhile, the U.S. dollar remained strong. Despite the possibility of two more interest rate cuts from the Federal Reserve this year, the U.S. Dollar Index (DXY) broke through a two-month high, influenced by political uncertainty in Japan and France. The U.S. government shutdown, now in its second week, and the Senate's repeated failure to pass a budget bill, did not appear to dampen dollar buying.

In the US, this week's market focus is on the University of Michigan's Consumer Confidence Index and speeches by Federal Reserve officials, which are expected to provide short-term direction for the US dollar. Overall, the USD/JPY exchange rate remains strong, nearing its yearly high.

From a technical perspective, USD/JPY has continued to test above 153.00 after breaking through the key resistance level of 151.00, indicating that the bullish trend remains solid. The daily RSI indicator shows that the exchange rate is slightly overbought and may experience a mild correction in the short term, but the overall structure still points to an upward channel.

If the price remains above the support zone of 152.60 to 152.00, it may rise again to the range of 153.75 to 154.00, with further targets pointing to the psychological level of 154.70 to 155.00.

Market analyst Haresh Menghani pointed out: "Although the yen may be supported by safe-haven buying in the short term, expectations of fiscal expansion and the Bank of Japan's cautious attitude towards raising interest rates will still limit its rebound. If the USD/JPY pair stabilizes above 153, it may start a new round of upward trend."

Editor's opinion:

From a macro perspective, Japan is currently facing the dual challenges of fiscal expansion and inflation stability. After taking office, Sanae Takaichi may restart the "Abe-style policy" framework, making the yen under pressure a medium-term trend.

If US inflation remains resilient and the Fed delays rate cuts, the dollar's relative gains will be further enhanced. While short-term adjustments are inevitable, the foundation for the USD/JPY's medium-term uptrend remains solid, so look for bargain hunting opportunities.