12 Dec 2014
Expect USD/JPY to be higher after election results - BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, expects USD/JPY to be higher on Monday on the back of expected election results of Abe's victory, but not considerably so as markets seem to have already priced in the result.
Key Quotes
"After an 11.6% surge in USD/JPY from the low on the day of the BOJ meeting on 31st October to the high on Monday, USD/JPY has been in corrective phase with a fall to 116.00 looking feasible over the short-term. Strong US retail sales data yesterday helped arrest this correction lower with USD/JPY rallying from 118.50 to 119.50 in the aftermath of the US data."
"However, the sell-off in USD/JPY into the New York close yesterday suggests downside risks persist for now. USD/JPY has traded more in sync with US 2-year yields since the strong US employment report last week and while yields did rise yesterday, the follow-through today is lacking so far and that could dampen enthusiasm for buying USD/JPY ahead of the election this weekend. That will be the key driver for USD/JPY early next week. Indeed, part of the buying yesterday probably reflected the high confidence in the market that the LDP/New Komeito coalition will get a resounding victory in Sunday."
"However, this resounding victory that is being signalled by the opinion polls should certainly not be viewed as a vote of approval in ‘Abenomics’. Kyodo News also reported a decline in PM Abe’s own approval rating and a majority indicating dissatisfaction with the current economic policies of the government. So a win on Sunday will be just as much about the lack of credible alternative to ‘Abenomics’ and PM Abe will need to convince the electorate in 2015 that structural reform will benefit all through lifting Japan’s potential growth rate in order to tackle the long-term debt problem."
"The voting on Sunday in Japan will end at 8pm local time with exit polls then published immediately. The final official result will then be known sometime on Monday, pretty much by around the time London opens. Turnout may well be low – there are snow storms predicted for some parts of the country, A low turnout would only favour the LDP/New Komeito even more."
"We would expect USD/JPY to be higher on Monday on the back of the expected result – but not considerably so and in reality, a strong victory for PM Abe is fully priced. So from a risk-reward perspective, the surprise is only that PM Abe does worse than expected and given that we have already entered a corrective phase, that would prompt a bigger move to the downside."
Key Quotes
"After an 11.6% surge in USD/JPY from the low on the day of the BOJ meeting on 31st October to the high on Monday, USD/JPY has been in corrective phase with a fall to 116.00 looking feasible over the short-term. Strong US retail sales data yesterday helped arrest this correction lower with USD/JPY rallying from 118.50 to 119.50 in the aftermath of the US data."
"However, the sell-off in USD/JPY into the New York close yesterday suggests downside risks persist for now. USD/JPY has traded more in sync with US 2-year yields since the strong US employment report last week and while yields did rise yesterday, the follow-through today is lacking so far and that could dampen enthusiasm for buying USD/JPY ahead of the election this weekend. That will be the key driver for USD/JPY early next week. Indeed, part of the buying yesterday probably reflected the high confidence in the market that the LDP/New Komeito coalition will get a resounding victory in Sunday."
"However, this resounding victory that is being signalled by the opinion polls should certainly not be viewed as a vote of approval in ‘Abenomics’. Kyodo News also reported a decline in PM Abe’s own approval rating and a majority indicating dissatisfaction with the current economic policies of the government. So a win on Sunday will be just as much about the lack of credible alternative to ‘Abenomics’ and PM Abe will need to convince the electorate in 2015 that structural reform will benefit all through lifting Japan’s potential growth rate in order to tackle the long-term debt problem."
"The voting on Sunday in Japan will end at 8pm local time with exit polls then published immediately. The final official result will then be known sometime on Monday, pretty much by around the time London opens. Turnout may well be low – there are snow storms predicted for some parts of the country, A low turnout would only favour the LDP/New Komeito even more."
"We would expect USD/JPY to be higher on Monday on the back of the expected result – but not considerably so and in reality, a strong victory for PM Abe is fully priced. So from a risk-reward perspective, the surprise is only that PM Abe does worse than expected and given that we have already entered a corrective phase, that would prompt a bigger move to the downside."