Japan dissolved its ;lower Parliament today as it prepared for elections and LDP leader Shinzo Abe reaffirmed his call for a more aggressive monetary policy, but USD/JPY remained under pressure for most of Asian and European trade today dropping through the 81.00 level. Mr. Abe once again said that he consider changing the BOJ law in order to encourage more aggressive QE measures.

Prime Noda however, who is expected to be Mr. Abe’s rival in the election stated that if the government were to set monetary policy steps it would hurt the independence of the central bank. The election promises to be a sharp contrast between the much more assertive style of Mr. Abe and the more traditional gradualist approach of Mr. Abe.

After several days of strong rallies, USD/JPY however failed to follow through as the 81.50 level proved to be too much for the pair and profit taking kicked in. One other possible reason for the weakness in the pair is the decidedly dovish stance of the Fed. Wednesday’s FOMC minutes showed that the US monetary policy will remain highly accommodative for the foreseeable future and will act as a counterweight to any USD/JPY rally.

Still Mr. Abe’s stance is the first sign of serious attempt to realign Japan’s ineffective monetary and exchange rate policy and if he is elected the markets will likely give him the benefit of doubt propping up USD/JPY for the time being. For now the pair is consolidating its recent gains with 80.65 now the key support level for the bulls that must hold in order to keep the recent rally going.