Heisenberg Report

Yen Falls After Japanese Election As Nikkei Eyes Record Winning Streak

Ok, so just a quick note as trading gets underway and we start the new week in Asia.

As expected, USDJPY is up following the Japanese elections. With Abe’s ruling coalition retaining a two-thirds majority in the lower house, Abenomics isn’t going anywhere although, as noted earlier, it really wasn’t clear that an “adverse” outcome would have materially changed the outlook for BoJ policy. Given that, it’s entirely possible that the yen could ultimately succumb to a “buy the news” trade (i.e. yen weakness tied to expectations for business as usual could be faded). As one trader told Bloomberg, the dollar’s advance could slow as it nears large call options at 114.00 expiring this week.

“Japanese election results were as expected,” Daisuke Uno, chief strategist at Sumitomo Mitsui said this evening, adding that the “market isn’t trading on Japanese politics” but rather on “U.S. factors such as bilateral trade talks, U.S.’s desire to weaken the dollar, U.S. tax reforms and U.S. politics leading into next year’s mid-term election.”


Ok, whatever, right? For now, USD/JPY is advancing and that’s obviously positive for risk sentiment:

“A large win for Abe’s coalition would pave the way for more ultra-easy monetary policy and flexible fiscal stimulus that has boosted Japanese stocks and helped Asia’s second-biggest economy grow for six straight quarters,” Bloomberg notes, stating the obvious.

Now we’ll see if this is enough to propel the Nikkei to a 15th consecutive winning session and whether, assuming yen weakness does in fact continue overnight, that’s enough to get global risk assets off on the “right” foot this week.