Yen Weakens as Japan Faces Political Uncertainty Despite Upbeat GDP Data

Key Takeaways:

*Political instability following PM Ishiba’s resignation drove renewed selling, overshadowing Japan’s stronger economic data.

*Q2 growth was revised higher to 2.2% annualized, fueling upgraded 2025 growth projections.

*Tariff risks and leadership transition leave markets cautious over the BoJ’s future policy path.

Market Summary:

The Japanese yen extended its recent slide as political turmoil in Tokyo overshadowed stronger-than-expected economic growth figures. The currency traded at 147.84 per dollar on Sept. 8, retreating from earlier levels in the week. Over the past five sessions, USD/JPY has swung between 148.92 on Sept. 3 and 146.85 on Sept. 5. The yen also tumbled to a one-year low against the euro, with EUR/JPY up 0.4% at 173.40.

Market participants attribute the selloff to renewed concerns over political instability after Prime Minister Shigeru Ishiba announced his resignation on Sept. 7, just weeks after the ruling Liberal Democratic Party suffered a stinging electoral defeat. The uncertainty has cast doubt over the Bank of Japan’s policy trajectory, with investors questioning whether leadership changes could delay eventual rate hikes.

The political upheaval comes as Japan’s economy shows signs of resilience. Revised second-quarter GDP figures released Sept. 8 showed annualized growth of 2.2%, beating the preliminary 1.6% and consensus forecasts. On a quarterly basis, GDP expanded 0.5%, driven by firm consumer spending. Analysts have lifted full-year 2025 growth projections to 1.1%, noting that the economy has avoided slipping into recession.

Still, the outlook remains clouded. External headwinds, including the prospect of new U.S. tariffs, and domestic political turbulence could weigh on momentum in the coming quarters. Several Liberal Democratic Party lawmakers, including former Foreign Minister Toshimitsu Motegi, have entered the leadership race, though markets remain cautious on whether the eventual successor will steer Japan toward a more hawkish or moderate policy stance.

Technical Analysis 

NZDJPY, H4

The NZDJPY pair has broken out of its previous bearish structure, which was defined by a series of lower highs, and has now tested its prior peak—suggesting a potential bullish trend reversal. A price gap formed in yesterday’s uptrend, and if the pair is able to establish support within this gap, it could reinforce a strong bullish continuation signal.

Momentum indicators are aligning with the bullish view. The RSI is on the verge of entering the overbought zone, while the MACD has broken above and sustained itself above the zero line, further supporting the case for renewed upside momentum in the pair.

Resistance level:88.90, 90.10

Support level: 86.15, 85.05