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JPY: Upper house elections take place this weekend. A strong showing for Abe’s LDP (which is widely expected) would likely see the yen softer initially when results come through on Monday.

GBP: Government borrowing data ends what has been a volatile two weeks for sterling, largely thanks to the Bank of England and its new governor. Government borrowing data today is a low risk for the currency, but if notably higher than expected could knock the edge off sterling.

Idea of the Day

From being a near ‘no-brainer’ story of weakness from November of last year to May of this, the yen has gone back to being one of the more difficult currencies to rationalise in the past two months. There have been several reasons for this, but one has been the fact that PM Abe has been slow to foster the third ‘arrow’ of his plan, namely structural reforms of the Japanese economy.

Getting agreement on this was never going to be easy, one reason why he has waited for this weekend’s Upper House election to pass before moving ahead.   The main question is the extent of the gains that his LDP party achieve, giving them control of the Upper House with their coalition partner. For the yen, a strong showing is likely to see the currency weaken initially, on the expectation that ‘Abenomics’ is going to get a fresh shot in the arm in the second half of the year.   But the road will be harder than that for QE and the BoJ, so a break of the year’s high of 103.74 on USDJPY may not happen anytime soon.

Latest FX News

USD: The dollar finds itself weaker overnight, largely as a result of the modest gains on the yen as stocks weaken (lead by the tech sector).   The Fed Chairman has this week underlined the extent to which the decision to reduce the monthly amount of bond purchases will be dependent on data, especially on the labour market, making the dollar more data sensitive than before.

JPY:  USDJPY tried to push ahead and front-run a strong showing for the ruling LDP party at this weekend’s Upper House election, but momentum wanted as stocks moved into negative territory, pushing USDJPY back below the 100 level. Weekly data showed domestic investors buying overseas bonds for the second consecutive week.

GBP: Sterling receiving a lift from retail sales data yesterday, with YoY reading higher than expected. Expectations are now for a fairly strong showing for the second quarter (data next week), with 0.5% QoQ gain expected, but some forecasts for as high as 0.7%.