Forex: EUR/JPY records biggest daily gains in 2 months

FXstreet.com (Barcelona) - The Japanese Yen was dumped across the board on Wednesday, as traders got busy discounting the prospects of even heavier easing measures by the BoJ, all consequence of Japan's PM Noda intentions to dissolve the country's parliament lower-house this Friday and call early elections for December 16.

According to Reuters, "opinion polls show Noda's Democratic Party of Japan (DPJ) heading for a heavy drubbing in the vote." The most likely replacement would be LDP chief Shinzo Abe, who has already called for "unlimited" monetary easing, as it aims to bring the target inflation rate up to a very ambitious 3%.

As FXstreet.com Contributor Richard Lee notes: "With Shinzo Abe back at the helm, the newly passed sales tax bill is likely to be repealed. In addition, Abe is expected to bring about a more hawkish stance against China -a major trade partner - as well as raising the BaoJ's target inflation rate. The rate is expected to be lifted to 3%, prompting even more stimulus. Ultimately, the increase in monetary stimulus will be detrimental to the Japanese yen, already suffering from a bout of devaluation."

One of the most notorious rallies after Noda's 'shocker' was observed on the EURJPY, which extended its Tuesday's November 13 bounce off 100.30 technical support to end the NY session around 102.20, recordings its best daily performance since September 13. According to Sean Lee, Fonder at FXWW, "EURJPY is back in the middle of its recent 100/104 holding range and the overnight move looks more like a classic short squeeze rather than a fundamental shift in fortunes."