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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 18 November 2014 at 7:24 GMT

Japan snap election and sales tax announcement in the works

Global Macro Strategist / Saxo Bank Group - Singapore Hub
Singapore
  • JP equities were sold off and USDJPY came off yesterday - a knee-jerk reaction
  • Remain very positive and bullish on USDJPY as well as Japanese equities
  • We are in the 116-120 trading range for the next six months

By Kay Van-Petersen

I think there is a very high probability of already getting an announcement this afternoon that will call for a snap election as well as issue a delay to the sales tax hike decision.

Some key dates to keep in mind that we are hearing:

  • If parliament was to be dissolved immediately, early December would mark the start of a snap election, with a final election date around mid December (14-16)

  • Abe has the power to do this without voting needed by the house
  
  • April 2017 the proposed date at which the sales tax hike will be postponed

  • Here the House would have to vote on a changed and new tax bill

  • There is also chatter about a potential stimulus package, with numbers as high as USD42 bilion (JPY 5 trillion) being heard. There also seems to be a question of quality stimulus versus quantity stimulus (ie they don't have that much more money to spend)

If no announcement comes out today, we'd expect a near virtual certainty of an announcement within the next two weeks.

I believe the knee jerk reaction yesterday was incorrect whereby JP equities were sold off and USDJPY came off, hitting a low of 115.46 after an initial high of 117.05.

USDJPY - today
xxx
 

Net Net - my views are structurally intact, very positive and bullish on USDJPY as well as Japanese equities (just hedge the FX). The recession only magnifies the pressure and extent that both fiscal and monetary policies in Japan will have to be that much more accommodative. We also have not seen the full ripple and domino effect of the GPIF pension fund re-allocations feeding through to the rest of the AM, HF and retail investment spheres.

Nikkei today

xxx
 
I still think we are in the 116-120 trading range for the next six months, with the second half of 2015 taking us over 120, in the 120-125 range - most likely from the initial Fed hike next year - and I'd expect us in north of 130 in 2016

The Nikkei closed today at 17,344, which was +2.2% on the day. USDJPY was last at 116.70, pretty much flat for the day (compared to our +1.5 figures moves yesterday)

A profitable trading day to you all.

Kay Van-Petersen is Asia macro strategist at Saxo Capital Markets in Singapore



4y
Kay Van-Petersen Kay Van-Petersen
Also worth bearing in mind, that the views on whats going on in JP & price action on JP equities in particular are diverse. My colleague and equity specialist Peter G. has a different take that can be seen here: http://goo.gl/kIZLmi

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