To no one’s surprise, the conservative Liberal Democratic Party has returned to power in Japan as they are projected to win 291 out of 480 seats in Japan’s lower house.
If you add to that the 30 seats that were won by their ally party, the New Komeito Party, that gives them a two thirds majority in the lower house that will enable them to overrule the upper house. This should allow them to break deadlocks that have stopped legislation in the past.
The Democratic Party of Japan is only expected to win 56 seats in this election. Prime Minister Yoshiko Noda resigned on Sunday evening a few hours after the polls had closed. In conceding the election he called the results a “disappointment”.
The new Prime Minister Shinzo Abe, considered more of a “hawk” than Noda will try to alleviate anxiety over the economic stagnation in Japan and work towards renewing good relationships with China.
Abe has already called for more easing by the Bank of Japan in an attempt to stimulate the economy and get the inflation rate to 2%.
The USD/JPY ended trading on Friday at the 83.50 levee, well of the 83.95 high seen earlier in the trading day. It will be interesting to see how the markets react to the election results. Was this a buy the rumor, sell the fact event? Or will the markets continue selling JPY and push the USD/JPY back towards 84.00?
As the markets open in Asia, the USD/JPY has moved through the resistance level of 84.00, as traders react to the LDP victory in Japan. According to the technical charts the 85.00 level is the next resistance level that traders will focus on.
While moves in the EUR, as well as the continuing negotiations on the fiscal cliff go on, these will take a backseat to moves in the JPY. JPY weakness should continue as traders expect further easing from the BOJ.
Further reading: Japanese Elections: Potential Reaction of Currencies