JPY crosses/USD/JPY

What to expect from the Yen on Monday morning

The election booths will close at 11:00 GMT and then major TV stations will immediately issue their forecasts. Based on the most recent newspaper polls, the opposition and previously dominant LDP are expected to return to power with a resounding majority, but its the nature of the majority in the 480-seat Lower House which will determine what happens to the Yen:

  • An overall majority of 2/3 to the LDP alone would ensure that they can pass most bills and therefore could initiate the extreme easing policies which have been foreshadowed. Such a result would see the Yen crosses open significantly higher in my opinion (EUR/JPY 110.50/111.00 probably). There are some risk factors that such an overall majority would bring, like more potential conflict with China over Sovereign lands etc, but they are longer-term concerns:
  • The LDP gain the 2/3 majority with the help of smaller parties, and this seems to be the most expected result. This would probably see some initial Yen weakening before the ‘buy-rumour-sell-fact’ effect leads to JPY short-covering:
  • Any other result will be bearish for USD/JPY in my opinion.

See you tomorrow morning for what should be an exciting open.

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