Sentiment around the USDJPY remains negative causing the par drift down to 112.35 yesterday. Yet, outlook supports a higher USDJPY. Recent election news has been causing JPY volatility. News that the popular Tokyo governor Koike would not stand as a candidate for PM should have weaken JPY but has a muted effect. There has been a general rise in support for Abe and his LDP party according to polls, shifting away from upstarts and historical opponents. Moving forward we expect the LDP will further strength control of the 465 seat parliament.
The increase probably of Abe remaining to drive Japanese policy suggest that “Abenomics” and the systematic debasing of the JPY will continue. However, given the exhausted tools accessible the BoJ external factors are more likely to drive JPY pricing. In this regard, our base scenario is a USD rally in the short-term. Our thinking based on growing risk in Catalonia Spain and underpricing of Fed policy path (65% probably for a 25bp rate hike in Dec). We remain constructive on USDJPY with expectations for extension of bullish rally to 114.35.
By Peter Rosenstreich
