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14 Dec 2014
Yen steady as Abe secures Abenomics on snap election victory
FXStreet (Guatemala) - The third largest economy in the world, that has been struggling and recently fallen back into a recession, has just seen the most powerful Prime Minister Japan has had in many years win a further 4 years in power.
The ruling coalition, Mr Abe's Liberal Democratic Party (LDP), won a two third majority in the House of Representatives with a victory in the snap elections that took place over the weekend. This was seen as a referendum on Abe's economic policy, which had been losing its popularity of recent times after being launched in 2013 to battle against two decades of deflation in the economy as Japan slipped back into reciession as confirmed by the last quarter GDP results.
However, the win didn't come as a surprise. Much was already priced into the markets after a number of surveys had been carried out and predicting an Abe victory. It was widely expected due to there being a lack of alternatives as the opposition has been in disarray. Moreover, the turnout of voters was poor at just 35% two hours ahead of the polls closing, because of voter apathy plus the bad weather and snowstorms in some areas of Japan has been blamed.
This victory will be seen as positive for the USD/JPY due to Abenomics as he retains a further four more years in power. This will enable Abe to complete his vision of economic reform and that should continue to weigh on the Yen.
This reform will include Abe’s monetary policy, which is essentially printing vast amounts of money, weakening the Yen and good for exporters. This strategy of easing will be used to add liquidity into the domestic economy through Japan's purchases of government bonds. Government spending is also expected to help spur growth and that is Abe’s plan for fiscal stimulus. Finally, Abe can continue with his structural reform in sectors such as healthcare, energy and agriculture.
We will know be listening carefully for subsequent talk from Abe and further analyse and reports on the victory to gauge the direction of the Yen over the course of the rest of the sessions into year ending 2014. We await the action ahead for the day and markets to kick in for the week. After digesting the win for Abe markets will then begin to focus on the rest of the week ahead that starts with Japan's Tankan Manufacturing outlook today and then further into the week we will have US data, including CPI and the final FOMC for the year.
The ruling coalition, Mr Abe's Liberal Democratic Party (LDP), won a two third majority in the House of Representatives with a victory in the snap elections that took place over the weekend. This was seen as a referendum on Abe's economic policy, which had been losing its popularity of recent times after being launched in 2013 to battle against two decades of deflation in the economy as Japan slipped back into reciession as confirmed by the last quarter GDP results.
However, the win didn't come as a surprise. Much was already priced into the markets after a number of surveys had been carried out and predicting an Abe victory. It was widely expected due to there being a lack of alternatives as the opposition has been in disarray. Moreover, the turnout of voters was poor at just 35% two hours ahead of the polls closing, because of voter apathy plus the bad weather and snowstorms in some areas of Japan has been blamed.
This victory will be seen as positive for the USD/JPY due to Abenomics as he retains a further four more years in power. This will enable Abe to complete his vision of economic reform and that should continue to weigh on the Yen.
This reform will include Abe’s monetary policy, which is essentially printing vast amounts of money, weakening the Yen and good for exporters. This strategy of easing will be used to add liquidity into the domestic economy through Japan's purchases of government bonds. Government spending is also expected to help spur growth and that is Abe’s plan for fiscal stimulus. Finally, Abe can continue with his structural reform in sectors such as healthcare, energy and agriculture.
We will know be listening carefully for subsequent talk from Abe and further analyse and reports on the victory to gauge the direction of the Yen over the course of the rest of the sessions into year ending 2014. We await the action ahead for the day and markets to kick in for the week. After digesting the win for Abe markets will then begin to focus on the rest of the week ahead that starts with Japan's Tankan Manufacturing outlook today and then further into the week we will have US data, including CPI and the final FOMC for the year.