Sterling has made some heavy inroads against the Yen since the start of August. Improved optimism around Brexit talks has allowed the Pound to capitalise on the JPY’s current frailties, mainly originating from the upcoming Liberal Democrat Party elections on Thursday. More on the potential volatility caused by this vote in the market report below. The table shows the difference in JPY return when selling £100,000.00 during the high and low trading points of the past week.
|Currency Pair||% Change||Difference on £200,000|
Former defence minister Shigeru Ishiba is the main threat to PM Abe who is pushing for his 3rd term as leader. The pair have clashed numerous times over the last month with Ishiba pressing on a number of pressure points that seem to have dramatically bolstered his popularity.
Ishiba questioned the value of Abenomics to the Japanese people as a whole, highlighting that it is only really benefitting international companies and not the local small businesses from the agricultural and fishing sectors. He also brought up Abe’s mishandling of the Gakuen scandal where Government Officials falsified documents to facilitate the sale of state owned land.
I still feel it is very unlikely the party will move against Abe given how disastrous a change of leadership would be for the LDP with so many policies still being implemented.
Although an Abe victory would lead to just more of the same, there is potential for the Yen to recover some ground with investors seeing the tangible value in long-term political stability, potentially making JPY more expensive as the week comes to an end.
It will be interesting to see how the markets react in the build up to Thursday, with the Bank of Japan’s (BoJ) interest rate meeting overnight Tuesday likely to take centre stage. In the last 5 and a half years, Abe has famously implemented a number of controversial policies with the Bank of Japan’s compliant stance playing a key role.
As it stands, with Abe in power, I feel it is very unlikely we will see any changes in monetary policy for at least another 12 months with inflation and general economic activity still struggling to rebound. But given how politically charged the BoJ has been in the last decade there might be scope for a slight shift in commentary which could bring volatility.
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