Forex Flash: Yen weakens sharply on general election announcement – BTMU
FXstreet.com (Barcelona) - The Yen has weakened sharply following Prime Minister Noda's announcement that he is happy to dissolve the Diet on Friday so long as the opposition agree to electoral reform write Derek Halpenny, European Head of Global Markets research at the Bank of Tokyo Mitsubishi UFJ.
He notes that an agreement on passing the deficit-financing bill in the Upper House was agreed yesterday and hence, assuming the electoral reform issue is agreed, a general election may no take place on the 16th of December. The electoral reform essentially boils down to the LDP agreeing to reduce the overall number of seats in the Lower House. Halpenny notes that the initial response to the PM's suggestion from opposition leader Abe was that electoral reform was not something that just the major parties could decide on alone.
Halpenny continues to highlight that the BTMU Strategist in Tokyo, Takahiro Sekido, points out that a social security cross-party committee also needs to be formed. Elsewhere, PM Noda made a commitment to enter Japan into the TPP (Trans Pacific Partnership) negotiations before dissolving the Diet but election reform appears to be the hot topic before further progress can be made elsewhere.
He proceeds to look at the wares of the Yen and notes that the sell-off is understandable from the perspective of fresh uncertainty although the only surprise element in the PM's announcement is that it may have come a little bit earlier than expected. Halpenny writes, "An election was always coming - the only issue was whether it took place in December or probably January. With Shinzo Abe a very vocal proponent of more aggressive BOJ policy easing in order to tackle deflation, the financial markets can now begin to price more confidently the risk of more overt political pressure on the BOJ to rid Japan of deflation."
With real GDP contracting again and the Government about to downgrade its assessment of the economy on Friday for a fourth consecutive month, pressure on the BoJ after a probable LDP election win is likely to build. Halpenny finishes by noting that of course with Governor Shirakawa's tenure due to end in April, these political changes will fuel speculation of a policy shift in the BoJ which is a clear Yen negative story for 2013. He feels that the spike today is also indicative of a short term market which has increasing appetite for selling the Yen. With risk appetite fragile, he is sceptical of any sharp Yen sell-off from here and maintain that Yen weakness is more a 2013 story.
He notes that an agreement on passing the deficit-financing bill in the Upper House was agreed yesterday and hence, assuming the electoral reform issue is agreed, a general election may no take place on the 16th of December. The electoral reform essentially boils down to the LDP agreeing to reduce the overall number of seats in the Lower House. Halpenny notes that the initial response to the PM's suggestion from opposition leader Abe was that electoral reform was not something that just the major parties could decide on alone.
Halpenny continues to highlight that the BTMU Strategist in Tokyo, Takahiro Sekido, points out that a social security cross-party committee also needs to be formed. Elsewhere, PM Noda made a commitment to enter Japan into the TPP (Trans Pacific Partnership) negotiations before dissolving the Diet but election reform appears to be the hot topic before further progress can be made elsewhere.
He proceeds to look at the wares of the Yen and notes that the sell-off is understandable from the perspective of fresh uncertainty although the only surprise element in the PM's announcement is that it may have come a little bit earlier than expected. Halpenny writes, "An election was always coming - the only issue was whether it took place in December or probably January. With Shinzo Abe a very vocal proponent of more aggressive BOJ policy easing in order to tackle deflation, the financial markets can now begin to price more confidently the risk of more overt political pressure on the BOJ to rid Japan of deflation."
With real GDP contracting again and the Government about to downgrade its assessment of the economy on Friday for a fourth consecutive month, pressure on the BoJ after a probable LDP election win is likely to build. Halpenny finishes by noting that of course with Governor Shirakawa's tenure due to end in April, these political changes will fuel speculation of a policy shift in the BoJ which is a clear Yen negative story for 2013. He feels that the spike today is also indicative of a short term market which has increasing appetite for selling the Yen. With risk appetite fragile, he is sceptical of any sharp Yen sell-off from here and maintain that Yen weakness is more a 2013 story.
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