Shinzo Abe wins vote of confidence on Abenomics
The Japanese yen (JYN) continued to depreciate after the election results were announced last week. For the week ending October 27, the Japanese yen (FXY) closed at 113.7 against the US dollar (UUP), depreciating by 0.15%. The US dollar rally in the previous week and the confirmation that the ultra-loose monetary policy in Japan will continue is likely to hurt the yen.
Japanese equity markets (EWJ) remained upbeat with the Nikkei 225 (JPXN) posting a weekly gain of 1.3% for the week ending October 27. The export-dependent nation is likely to get support from a weaker yen as the Bank of Japan is expected to continue with its ultra-loose monetary policy.
Speculators increased bearish bets on the yen
The Japanese yen (YCL) speculators increased their net short positions on the yen, according to the latest Commitment of Traders (or COT) report released on October 27 by the Chicago Futures Trading Commission (or CFTC). The total net speculative short positions rose to 116,857 contracts from 101,286 contracts in the week ending October 20. Now that markets are convinced that there won’t be major changes to monetary policy, there could be a further increase in short positions in the near term.
Week ahead for the Japanese yen
After the elections, the Japanese yen is likely to remain depressed against major currencies. The key event this week is the Bank of Japan (or BOJ) policy meeting on Tuesday. The BOJ is expected to maintain its qualitative and quantitative easing (or QQE) program with yield curve control policy intact at this meeting.
Prime Minister Shinzo Abe has renewed his commitment to his economic policy and is likely to reappoint current BOJ governor Kuroda for another term. The continued ultra-loose monetary policy could help the BOJ meet its 2% inflation target. The only likely reason for the yen to appreciate in the current economic climate would be a rise in geopolitical tensions.
In the final part of this series, we’ll discuss the key central bank decisions that are expected this week.