22 Jul 2013
Flash: Abe's coalitios victory USD/JPY positive medium term - Nomura
FXstreet.com (Barcelona) - The LDP/New Komeito coalition won the Upper House election in Japan, ensuring a comfortable majority, despite the LDP failed to gain a majority on its own, an outcome widely expected by local media polls and hence by investors, yet offshore investors expected the LDP to gain a majority on its own more than Japanese investors did, based on Nomura global client survey conducted last Thursday, notes Yujiro Goto, Nomura Strategist.
Key quotes
"The LDP's solo majority is regarded as an upside risk for USDJPY as it means stronger support for Prime Minister Abe's economic policy, which pursues easier monetary conditions with a lower JPY. The rise in USDJPY last week was partly supported by expectations of an LDP landslide victory. As the LDP failed to gain a solo majority, USDJPY selling to take profits by foreign investors is possible in the short term. At the same time, however, our client survey suggested that more investors focus on growth strategy and Japanese economic data as potential catalysts to unwind their USDJPY long positions than the Upper House election. Therefore, any possible dip in USDJPY will not be deep."
"Therefore we think the LDP/ New Komeito coalition's victory is USDJPY positive in the medium term. The Ruling coalition now holds majorities in both houses, enabling it to decide economic policy more smoothly. In addition, there will be no national level
election until summer 2016 unless the LDP decides to call an early Lower House election. The Japanese political situation is becoming much more stable than nine month ago, which is supportive for Japanese equity prices and hence USDJPY."
"The momentum of JPY weakness will not be strong in the near future though. JPY has already depreciated broadly since last October, as expectations for bolder policy responses rise. There still are a couple of Japanese political events, such as the final
decision on the consumption tax hike and an update of growth strategy, but they are less significant for the FX market than events of the past nine months. Furthermore, our client survey result suggests that a majority of investors still hold USDJPY long positions, indicating there is less room for further JPY selling in the speculative community than nine months ago. We expect 100-105 to be the core trading range of USDJPY this year, and we target 102 for end-2013. The extraordinary diet session expected in October is a Japan-oriented event that could surprise the financial market positively.
"We expect a rise in USDJPY as regains its momentum next year, as the divergence in monetary policies in the US and Japan should be clearer next year. We do not foresee any tightening of monetary policy by the BOJ in the near future, while the Fed is expected to start normalizing its easing policy. We think the yield difference between US and Japan will likely continue to widen both in nominal and real terms, lifting USDJPY to 110 by end-2014."
Key quotes
"The LDP's solo majority is regarded as an upside risk for USDJPY as it means stronger support for Prime Minister Abe's economic policy, which pursues easier monetary conditions with a lower JPY. The rise in USDJPY last week was partly supported by expectations of an LDP landslide victory. As the LDP failed to gain a solo majority, USDJPY selling to take profits by foreign investors is possible in the short term. At the same time, however, our client survey suggested that more investors focus on growth strategy and Japanese economic data as potential catalysts to unwind their USDJPY long positions than the Upper House election. Therefore, any possible dip in USDJPY will not be deep."
"Therefore we think the LDP/ New Komeito coalition's victory is USDJPY positive in the medium term. The Ruling coalition now holds majorities in both houses, enabling it to decide economic policy more smoothly. In addition, there will be no national level
election until summer 2016 unless the LDP decides to call an early Lower House election. The Japanese political situation is becoming much more stable than nine month ago, which is supportive for Japanese equity prices and hence USDJPY."
"The momentum of JPY weakness will not be strong in the near future though. JPY has already depreciated broadly since last October, as expectations for bolder policy responses rise. There still are a couple of Japanese political events, such as the final
decision on the consumption tax hike and an update of growth strategy, but they are less significant for the FX market than events of the past nine months. Furthermore, our client survey result suggests that a majority of investors still hold USDJPY long positions, indicating there is less room for further JPY selling in the speculative community than nine months ago. We expect 100-105 to be the core trading range of USDJPY this year, and we target 102 for end-2013. The extraordinary diet session expected in October is a Japan-oriented event that could surprise the financial market positively.
"We expect a rise in USDJPY as regains its momentum next year, as the divergence in monetary policies in the US and Japan should be clearer next year. We do not foresee any tightening of monetary policy by the BOJ in the near future, while the Fed is expected to start normalizing its easing policy. We think the yield difference between US and Japan will likely continue to widen both in nominal and real terms, lifting USDJPY to 110 by end-2014."