Japanese politicians may decide the winner of a brewing battle between USD/JPY bulls and bears.

The pair is hovering above its average exchange rate over the past 200 days at 151.69. Bears currently have the upper hand after it failed to top the key 155 pivot level this past week.

An unraveling of Trump trades, verbal warnings about currency volatility from Japanese authorities and talk of Japanese repatriation offers the yen a tailwind. Japanese investors sold a massive $29.2 billion of foreign long-term bonds and $7.7 billion of foreign shares in the week ending Nov. 2, marking the fourth consecutive weekly inflow.

Yen bulls are also being inspired by the prospect that U.S-Japanese policy rates converge in coming months as the Fed eases while the Bank of Japan hikes. Markets are currently pricing in a sub-4% Fed funds rate and a Bank of Japan policy rate of 0.50% by the July meeting dates. A soft U.S. CPI report next week (est. 2.6% y/y) would solidify expectations that the Fed will lower rates again in December.

But the policy outlook for the BOJ is more fluid. A recent batch of weak consumption data suggests policymakers may opt to be patient about tightening policy. That level of patience could extend well into next year if weekend negotiations result in a ruling coalition that feels compelled to influence BOJ policymakers.

On Friday, Yuichiro Tamaki, leader of the Democratic Party for the People, said the central bank should refrain from raising interest rates until wage growth was consistently outpacing inflation. Parliament convenes Monday to choose a new prime minister.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))