Forex Flash: USD/JPY rally overdone? divergence on U.S. vs Japanese yields - Econometer
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USD/JPY
FXstreet.com (Barcelona) - After Japan's Prime Minister Noda intentions to dissolve parliament on November 16, early elections in Japan are now expected for December 16.
By connecting the dots, investors have been pricing in more aggressive policy actions by the BoJ in case the opposition party LDP wins - polls suggest so -, with its chief calling for 'unlimited' easing.
As Mitul Kotecha, Founder at Econometer, notes: "The Japanese Yen drop was not attributable to political uncertainty but rather the prospects that a likely opposition led LDP victory in any new election would likely lead to a more aggressive stance on policy, putting more pressure on the BoJ to ease."
Mr. Kotecha adds: "USDJPY has broken back above the 80.00 level but is susceptible to a renewed drop given the decline in US bond yields relative to Japanese bond yields. Moreover, risk aversion has intensified over recent weeks, providing another prop to the JPY. However, worsening economic news means that official pressure for JPY weakness will be maintained and regardless of the elections the BoJ has a lot further to act over coming months."
By connecting the dots, investors have been pricing in more aggressive policy actions by the BoJ in case the opposition party LDP wins - polls suggest so -, with its chief calling for 'unlimited' easing.
As Mitul Kotecha, Founder at Econometer, notes: "The Japanese Yen drop was not attributable to political uncertainty but rather the prospects that a likely opposition led LDP victory in any new election would likely lead to a more aggressive stance on policy, putting more pressure on the BoJ to ease."
Mr. Kotecha adds: "USDJPY has broken back above the 80.00 level but is susceptible to a renewed drop given the decline in US bond yields relative to Japanese bond yields. Moreover, risk aversion has intensified over recent weeks, providing another prop to the JPY. However, worsening economic news means that official pressure for JPY weakness will be maintained and regardless of the elections the BoJ has a lot further to act over coming months."
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