USD/JPY tops 102 on hopes for Abenomics 2

Shinzo Abe’s LDP party had a successful night at the polls, winning more seats in Japan’s upper house. This could result in a constitutional change  of the country’s  pacifist limitations, but could also result in more fiscal stimulus.

And markets like stimulus: Asian stock markets are rising, and when stocks rise, so does USD/JPY.

Dollar/yen is trading above 102 with 102.21 being the top so far. This is a jump worth some 150 pips and this stands out in the current environment. The risk off sentiment that followed the big Brexit decision  has boosted the safe haven yen.

The BOJ and the government did not like this outcome as it hurts Japan’s competitiveness and pushed down inflation. The  yen’s strength is not exclusive to the dollar. The currency also strengthened against the yuan (devalued by the authorities in Beijing) and the euro (Brexit  fallout).

New stimulus?

According to reports coming out of Tokyo,  Abe will now  take advantage of his renewed mandate and introduce fresh stimulus. This is the reason for the big turnaround in the yen to the downside, at a time markets are not that cheerful.

The reports talk about a program worth 10 trillion yen to be introduced tomorrow. This includes introducing  construction bonds, new infrastructure and also encouraging investment. Abe wants to “make the most of zero interest rates”, something that is not happening in Europe for example.

Abe is also set to shuffle his government in August according to other reports. Will Japan deliver this time? Abenomics has had mixed success so far. Monetary stimulus is huge, fiscal stimulus is medium and the third arrow, reforms, has been weak.

Nevertheless, for the time being, this is sending the yen lower across the board.  

The next hurdle for  dollar/yen is 103.30, the post Brexit high. It is followed by 105, a very round number. On the downside,  the round number of 100 awaits.

More: USD/JPY: Get Ready For A Break Of Post-Brexit 99.05 Level – Morgan Stanley