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5 Dec 2014
Elections pose a modest risk for the JPY – TDS
FXStreet (Barcelona) - The TD Securities Team expects USDJPY to continue trending higher, even if at a more moderate pace than in the last four months, ahead of the progression in the polls.
Key Quotes
“The latest polls suggest that the LDP could win more than 300 seats, and, with more coming from coalition partner Komeito, the coalition is on track to retain the two-thirds majority. If that were to be the case, this would cause a modest impact on the JPY, as it would signal a continuation of the current stance of monetary policy by the BoJ, at least in the short term. Having raised the ante in late October, it is unlikely Mr. Kuroda et al would do more right after the elections. Even a 266 stable majority would lead to this outcome.”
“The more volatile reaction would arise if LDP-Komeito fall short of 266 seats, and the closer they would land to 238, the more the market would question the ability of Abe to push for reforms, especially since many of those reforms are opposed within his party.”
“The short-term impact on the JPY is uncertain though, as political instability would weigh on the currency, but a weaker coalition could also be seen as cause for a less resolute BoJ, which would push the JPY upwards, offering some offset.”
“In all, given the progression in the polls, the latter appears a less likely scenario, so we would expect to see USDJPY continue trending higher, even if at a more moderate pace than in the last four months. Therefore, unless a significant surprise materializes on December 14th, we are still comfortable with our 122 USDJPY forecast by the end of Q2.”
Key Quotes
“The latest polls suggest that the LDP could win more than 300 seats, and, with more coming from coalition partner Komeito, the coalition is on track to retain the two-thirds majority. If that were to be the case, this would cause a modest impact on the JPY, as it would signal a continuation of the current stance of monetary policy by the BoJ, at least in the short term. Having raised the ante in late October, it is unlikely Mr. Kuroda et al would do more right after the elections. Even a 266 stable majority would lead to this outcome.”
“The more volatile reaction would arise if LDP-Komeito fall short of 266 seats, and the closer they would land to 238, the more the market would question the ability of Abe to push for reforms, especially since many of those reforms are opposed within his party.”
“The short-term impact on the JPY is uncertain though, as political instability would weigh on the currency, but a weaker coalition could also be seen as cause for a less resolute BoJ, which would push the JPY upwards, offering some offset.”
“In all, given the progression in the polls, the latter appears a less likely scenario, so we would expect to see USDJPY continue trending higher, even if at a more moderate pace than in the last four months. Therefore, unless a significant surprise materializes on December 14th, we are still comfortable with our 122 USDJPY forecast by the end of Q2.”