Yen Continues Slide as Market Prepares for Abe Election

The Japanese yen pushed to another 7-year-high on expectations that Prime Minister Abe will win re-election in December and his Liberal Democratic Party will have to ease further to get inflation on track. Economic data was limited overnight as a slew of European manufacturing and services PMIs paced the market, but it was more yen selling that drove sentiment. US inflation figures for October were right on the money today, having limited impact on the dollar, still experiencing buying pressure after yesterday’s FOMC Minutes. US Existing Home Sales and Manufacturing PMI for October wrap up the North American morning at 10am EST.

Asian equities traded within a tight range despite softer China PMI data as all eyes rested on USD/JPY, nearly trading to 119.00, the highest rate since July of 2007. Markets are fully prepared for Prime Minister Abe’s ruling Liberal Democratic Party to win a majority in the vote, keeping his easy policies in place for the foreseeable future. Elsewhere in Asian trading, AUD and NZD were a touch softer as Chinese data weighed on the Aussie and news that Fonterra could cut milk payouts weighing on the kiwi.

The euro traded in a very tight range as the single currency shrugged off disappointing Eurozone flash PMIs. The pound got a lift from much better than expected retail sales data as EUR/GBP pushed back below the psychologically important 0.80 level on the release. The EUR/USD experienced a push higher in late Wednesday trading following the release of the most recent FOMC Minutes. Fed members acknowledged that inflation could slip a touch lower in the medium term, removing pressure to raise rates, but the market’s reaction shifted quickly. According to policy makers, it could be helpful to clarify the committee’s approach to the pace of rate increases and that clarity has permeated into dollar strength. After QE purchases ended last month, language may be the most useful option left to assure investors that policy won’t become overly obstructive.

Turning to North America, US weekly jobless claims missed the mark badly at 8:30am EST, which is presently hurting the dollar. Markets were expecting an increase of +270k new unemployment claims, the number was +291k and the dollar is sliding lower against the G-10 spectrum as we go to print. It has been a tight week for the Canadian dollar as oil and equities have stabilized. The Loonie, which has finally found its footing in the 1.13-1.14 area, has strengthened a touch this morning following the US claims numbers. Friday’s inflation numbers for October close out the week, the market is expecting a +2.0% increase over the same time period one year ago.

Further reading:

US inflation at 1.7%, core 1.8% – more than expected, jobless claims 291K – USD higher

What’s Next For USD Bull Market, EUR/USD, & USD/JPY? – Goldman