The Japanese Yen (JPY) remains under pressure this week as investors unwind safe-haven positions amid easing U.S. market concerns. Political developments in Japan have had little impact, with Sanae Takaichi confirmed as prime minister but leading a fragile minority government that limits prospects for major fiscal stimulus, ING's FX analyst Francesco Pesole notes.

Focus turns to BoJ

"Elsewhere, the yen is emerging as an underperformer this week. That appears more related to the unwinding of safe-haven JPY positions as US market concerns ease, and much more marginally due to political events in Japan. This morning, Sanae Takaichi was confirmed as prime minister by the parliament, four votes clear of the majority needed."

"That shows for the moment that she has the support of enough policymakers outside of her LDP-Ishin coalition, which is two votes short of a parliamentary majority. The nature of the minority government means Takaichi will find it hard to implement aggressive fiscal expansion, and market pricing for the BoJ (15bp by year-end) shows high uncertainty about the effective spending/debt implications of the new leadership."

"In our view, there is still a possibility of a 30 October hike (4bp priced in), also due to yen weakness. If not, December looks quite likely in our view. Unless the BoJ moves in October or USD comes under new idiosyncratic pressure, USD/JPY may stay above 150.0 as some debt concerns and carry funding continue to weigh on the yen."