The Japanese Yen's ascent continues, marking its second consecutive day of strength, as it reaches a one-week high against a broadly weaker US Dollar on Tuesday. This surge is primarily attributed to the removal of political uncertainty following Japan's snap election on Sunday, along with intervention warnings from Japanese authorities and expectations that the Bank of Japan will maintain its policy normalization path. These factors collectively act as a tailwind for the JPY. The ruling Liberal Democratic Party's (LDP) landslide victory in the lower house further bolsters Prime Minister Sanae Takaichi's authority, enabling her to pursue ambitious fiscally expansionary policies. However, this could potentially strain Japan's already strained public finances, which, combined with the upbeat market mood, may cap the safe-haven JPY. The negative impact of the bearish USD, however, fails to support the USD/JPY pair. Japanese Yen bulls are taking cues from the removal of political uncertainty, intervention fears, and hawkish BoJ bets. Japanese Prime Minister Sanae Takaichi's LDP secured a comprehensive victory in Sunday's election, winning 316 of the 465 seats in the lower house, the first supermajority since 1947. This clear mandate empowers Takaichi to override legislative vetoes from the upper house and pursue growth-friendly policies, raising concerns about fiscal sustainability and potentially leading to higher long-dated Japanese government bond yields, rising equities, and a weaker JPY. The easing tensions in the Middle East further boost investors' appetite for riskier assets, prompting intraday selling around the safe-haven JPY during the Asian session on Tuesday. However, the risk of intervention acts as a tailwind for the JPY, capping gains for the USD/JPY pair. Finance Minister Satsuki Katayama and Japan's top currency diplomat, Atsushi Mimura, have emphasized Japan's right to intervene against deviations from fundamentals, suggesting a likely direct intervention. The US Dollar's relative underperformance persists amid expectations of two more interest rate cuts by the Federal Reserve this year, diverging from the hawkish stance of the BoJ. Concerns about the US central bank's independence keep USD bulls on the defensive. US Treasury Secretary Scott Bessent refused to rule out a criminal investigation of Kevin Warsh if he refuses to cut interest rates, and President Donald Trump threatened to sue the Fed chair nominee if rates aren't lowered. Chinese regulators' advice to financial institutions to curb US Treasury holdings due to concentration risk and market volatility further favors USD bears and supports a near-term depreciating move for the USD/JPY pair. Traders await the US monthly Retail Sales release on Tuesday, with the focus on the US Nonfarm Payrolls report and consumer inflation figures on Friday, which will offer more insights into the Fed's rate-cut path. The USD/JPY pair now awaits a break below the psychological mark of 155.00 before the next leg down. Bears anticipate a sustained break below the 155.60-155.50 confluence, comprising the 200-hour SMA and the 38.2% Fibonacci retracement level of the recent upswing from the January swing low. The rising SMA suggests dynamic support at the average, while the MACD line nudges above the Signal line near the zero level, hinting at improving momentum. A sustained hold above the confluence support would keep recovery prospects alive. The RSI, currently at 39 below the midline, signals subdued buying pressure, suggesting that a break under 154.91 could extend the pullback to the 50% retracement at 154.91. The intraday tone remains guided by the rising 200-period SMA, which supports the downside and keeps sellers contained as long as the price trades above it. Overall, maintaining traction above the SMA-backed support leaves room for buyers to press higher, while a loss of momentum would shift focus back to the retracement floor.
