Yen unaffected by Abe’s victory
The spot forex markets seem to be following a trend of being anti-climactic. We saw a few weeks ago with the Swiss Gold referendum that was rejected by voters. Instead of expecting to see a weaker Gold and a weaker Swiss Franc, the opposite happened with both Gold and the Swiss Franc sharply rising. The same theme looks to be continuing with the Japanese elections as well. With Shinzo Abe’s LDP party winning with a clear majority, it would have ideally spelled Yen’s weakness with the Nikkei rallying. However, the market reaction was very subdued with the volatility in the early Asian trade coming on account of the Tankan surveys.
Although the LDP was expected to win the snap election, the voter turnout was close to 53% which marked one of the lowest voter turn outs in Japanese election history. Also, another factor that played a role being the timing of the election, where there was literally no opposition to Shinzo Abe’s party. Having won the election with a 2/3rd majority, the victory however is being seen as an approval for Abenomics to continue from a broader perspective. But read between the lines and the results when considering the voter turnout, shows that perhaps the Japanese aren’t really that approving of Abe’s policies to reignite inflation.
The Asian trading session saw some key fundamentals from Japan being released. Business sentiment was weak which muted risk appetite while at the same time; news of a hostage incident in Sydney, Australia is likely to see continued demand for safe haven assets, which includes the Yen.
The US Federal Reserve will start its two day meeting on Tuesday and markets could possibly continue to see subdued or range driven trading until the FOMC press conference. Consensus is broadly focused on the Fed’s language as to whether the words ‘considerable time’ will be removed and if it is, will there be new language added to signal the interest rate hikes in the next few months.
The Bank of Japan will also be meeting a day later for its monetary policy and at this point it is largely an unknown as to whether the BoJ will keep its policy unchanged or if it will add further stimulus. It was only a few months ago in October, that the BoJ’s monetary policy unveiled another expansion to its QQE program which took the markets by surprise, coming just a day or two later after the October’s FOMC where the Fed ended its QE program as a whole.
The US Dollar posted declines last week and opened today’s trading session below the major short term support/resistance level of 88.45 after easing back from highs of 89.56 a major resistance level. Continued USD weakness could potentially see the Dollar Index head lower, possibly to test the support at 86.80 levels ahead of the FOMC which should then see the Dollar resume its bullish rally. At the time of writing, the USDJPY made an intra-day high towards 119.057 and is currently trading at 118.25