Chart of the day - GBPJPY (03.09.2021)

11:09 am 3 September 2021

Resignation of the Japanese Prime Minister Suga was quite unexpected. Indeed, he was an unpopular politician and was often criticized for how he handled the coronavirus pandemic but markets expected that he would at least remain on post until general elections scheduled for this fall. Suga continued the policy of his predecessor Shinzo Abe, called "Abenomics", that was targeted at boosting economic growth and inflation. 

At first glance market reaction may look justified given Suga's failures - stocks in Japan rallied and JPY pulled back. Markets seem to take for granted that the next Prime Minister - whoever it will be - will be better than Suga. However, what markets seem to forget is how Japanese politics looked before Abe took office in December 2012. Japan had 6 different Prime Ministers in the September 2006 - December 2012 period! Such a rapid succession rate makes it hard to do any major reforms and is generally negative for the economy. Suga lasted in the office around a year as well and one of the risks that markets seem to ignore is a risk that Japan's PM post will once again change hands frequently.

Taking a look at GBPJPY chart, we can see that the pair extended upward move today and reach an important resistance area. A 50% retracement of a recent correction as well as the downward trendline can be found in the 152.25 area. Breaking above this hurdle could hint at bullish trend reversal. However, in order to confirm this, a break above the 61.8% retracement at 153.10 would be needed as it marks the neckline of a double top pattern. Textbook range of the breakout from this pattern points to a move towards highs from late-May 2021.

Source: xStation5

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