Forex And Abenomics Yen On The Diet
The USD reached a 20-month high against the yen on Monday, as in the wake of the victory for Japan's Liberal Democratic Party (LDP) under leadership of Shinzo Abe in Sunday's elections speculators are anticipating more aggressive easing steps by the Bank of Japan.
USD/JPY hit 84.31 during late Asian trade, the pair's highest quote since April 2011; the pair subsequently consolidated at 83.92, gaining 0.47%.
Forex markets widely expected a LDP victory. In fact, the yen's sharp selloff since mid-November can be directly linked to building expectations of precisely the election outcome now at hand. From here, the Japanese unit may now have room to correct higher. With the voting over, the speculation that drove the selloff has been validated, leaving yen bears without a clear-cut catalyst to continue pushing prices lower until the LDP's efforts can be evaluated.
In the meantime, the door appears open for profit-taking. Indeed, speculative net short yen futures positioning hit a record high last week according to data from the CFTC, suggesting there is ample room for sellers to unwind bets and take profits off the table before the next leg of Yen selling commences. The proximity of the calendar year end may reinforce this dynamic.
The LDP-led two-party coalition secured a two-thirds majority in the Diet in Sunday's elections, which will effectively free the new government from intervention by the opposition-controlled upper house and allow it to push its financial agenda, known as "Abenomics", without much opposition. Mr. Abe, LDP President and the incoming prime minister, is out for unlimited asset purchase program by the Bank of Japan in order to meet the bank's 2% -3% inflation targets and spur growth in the world's third-largest economy in clutches of recession.
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