Our trading in USD/JPY has been outstanding. We have picked several turning points in a row and we’re feeling good about calling another one.

The yen is the laggard (USD/JPY strength) after an election loss for the ruling Democratic Party of Japan ramped up worries about political instability.

The DPJ, which has been ruling for one year, was beaten badly and fell to 44 seats compared to 51 for the Liberal Democratic Party. Smaller parties have already ruled out any coalitions that would ensure the 56 seats needed for a majority. The Lower House is the power-base of Japanese politics but the loss will hamper policy-makers and could stall or kill a proposed sales tax increase that would help to put Japanese finances in order.

Frankly, we haven’t been that impressed with the sell-off in JPY despite the disastrous election result. We see the recent USD/JPY strength as a standard retracement and the 50% Fibonacci retracement is already providing resistance. The measured target of the double-bottom at 86.96 has been met.

There is some talk that the DPJ’s loss could help to boost the yen. Prime Minister Naoto Kan has in the past said he is in favour of intervening in the forex market to weaken the yen in order to boost exports. Due to the election loss, there is growing speculation that the DPJ may push for a leadership change in a September party election.

Technically, the more powerful indicators are pointing lower. Sell here.