- The USD/JPY pair regains some positive traction on Tuesday, though a combination of factors might cap the upside ahead of this week's key event risks – the US presidential election and the Federal Open Market Committee (FOMC) meeting.
- Despite the political uncertainty in Japan, Bank of Japan Governor Kazuo Ueda said last week that the central bank remains committed to normalizing its monetary policy by gradually hiking interest rates if economic data align with forecasts.
- Friday's weaker US jobs report for October, which showed that Nonfarm Payrolls registered the smallest gain since December 2020, reaffirmed market bets for a 25 basis point interest rate cut by the Federal Reserve later this week.
- The chances of Donald Trump winning the 2024 US presidential election have deteriorated noticeably and the Democratic Vice President Kamala Harris has a slight lead in some polls, though overall they show a tight race to the White House.
- This prompts traders to unwind "Trump trades" and leads to a further decline in US Treasury bond yields, narrowing the US-Japan rate differential and offering some support to the Japanese Yen amid a generally weaker risk tone.
- Meanwhile, the "Trump trade" unwinding fails to assist the US Dollar to capitalize on the overnight bounce from a two-week low, warranting some caution for the USD/JPY bulls and positioning for any meaningful appreciating move.
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