Forex Flash: The DPJ releases its election manifesto – Nomura
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USD/JPY
FXstreet.com (Barcelona) - Yujiro Goto, Nomura Strategist has taken a look at the DPJ's election manifesto which was released today.
He notes that the party has pledged to act decisively to halt excessive moves in the yen and work with the Bank of Japan to end deflation, as it has been advocating in the past. The party also said it aims to exit from deflation in FY2014 and kept the nominal and real growth target at 3% and 2% respectively.
However, while the party has emphasised the need to cooperate with the BoJ to exit deflation, it did not mention the necessity of revising BoJ law, unlike the LDP, which has implied the possibility. Recent changes in the LDP leader Abe's stance, combined with the DPJ's manifesto released today, suggest that the revisions to BoJ law are unlikely to take place any time soon, even after the expected LDP election victory.
Goto also highlights the increase in speculative JPY shorts to $7.9bln as of November 20th, its highest level since April. He notes that the increase in net JPY shorts was not surprising, as USDJPY had been rising amid expectations of aggressive BoJ easing due to political movement. He believes that the surge from the previous week ($8.4bln of net shorts) suggests that speculative JPY selling has contributed to the recent USDJPY rally.
At the same time, he notes that a relatively modest amount of net JPY short suggests that fundamental changes and other underlying flows also support JPY weakness. USDJPY was at around 81.3 when the net JPY short reached $8.6bln on April 24th while it traded at 81.7 last Tuesday, a higher level than late April with smaller speculative JPY selling. Therefore Goto states that he believes that structural changes in Japan oriented flows show the upside risk of USDJPY is bigger now. Therefore he expects the pair to continue climbing, albeit at a more moderate pace towards next year.
He notes that the party has pledged to act decisively to halt excessive moves in the yen and work with the Bank of Japan to end deflation, as it has been advocating in the past. The party also said it aims to exit from deflation in FY2014 and kept the nominal and real growth target at 3% and 2% respectively.
However, while the party has emphasised the need to cooperate with the BoJ to exit deflation, it did not mention the necessity of revising BoJ law, unlike the LDP, which has implied the possibility. Recent changes in the LDP leader Abe's stance, combined with the DPJ's manifesto released today, suggest that the revisions to BoJ law are unlikely to take place any time soon, even after the expected LDP election victory.
Goto also highlights the increase in speculative JPY shorts to $7.9bln as of November 20th, its highest level since April. He notes that the increase in net JPY shorts was not surprising, as USDJPY had been rising amid expectations of aggressive BoJ easing due to political movement. He believes that the surge from the previous week ($8.4bln of net shorts) suggests that speculative JPY selling has contributed to the recent USDJPY rally.
At the same time, he notes that a relatively modest amount of net JPY short suggests that fundamental changes and other underlying flows also support JPY weakness. USDJPY was at around 81.3 when the net JPY short reached $8.6bln on April 24th while it traded at 81.7 last Tuesday, a higher level than late April with smaller speculative JPY selling. Therefore Goto states that he believes that structural changes in Japan oriented flows show the upside risk of USDJPY is bigger now. Therefore he expects the pair to continue climbing, albeit at a more moderate pace towards next year.
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