The Japanese yen continues to weaken, as the markets are expecting the BOJ to implement additional monetary easing. On Sunday, the Liberal Democratic Party swept into power after a resounding electoral victory on Sunday. Together with its coalition partner, the LDP will have a commanding majority in the Lower House of parliament and should have no trouble implementing its agenda. The party has previously declared that it will encourage monetary easing in order to increase growth and boost the floundering Japanese economy. LDP leader Shinzo Abe, who will head the new Japanese government, has stated that he wants to see aggressive easing by the BOJ.
We could get a taste of this as early as Thursday, when the BOJ meets for its next policy meeting. Abe also stated that he wants the new head of the BOJ to support his party’s economic platform of a 2% inflation target. The yen has crossed the psychological threshold of 84, and we could see more volatility as the week unfolds. Back in the US, the dollar has been having its own troubles against the major currencies following the Federal Reserve’s decision to implement another round of monetary easing, known as Q4.
Market focus has now shifted to the looming fiscal cliff crisis. This refers to a combination of tax hikes and spending cuts if Congress does not take action before the end of 2012. The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation’s wealthiest earners. However, the sides are still far apart on how deep the cuts should be to federal spending cuts, with the Democrats strongly opposed to cuts to major programs such as Medicare. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week.
USD/JPY for Tuesday, Dec 18, 2012
USD/JPY Dec 18 at 13:55 GMT
84.03 H: 83.95 L: 83.95
S3 S2 S1 R1 R2 R3
82.37 83.12 83.44 84.14 84.75 85.15
USD/JPY continues to rise, and could test 84.14 if the yen keeps losing ground. On the downside, 83.44 has strengthened as the pair trades at lower levels.
• Current range: 83.44 to 84.14
Further levels in both directions:
• Below: 83.44, 83.12, 82.37, 81.83 and 80.
• Above: 84.14, 84.75, 85.15, 85.62 and 86.32.
OANDA’s Open Position Ratios
The USD/JPY continues to point to a slight bias in favor of short positions, as traders appear to be split on which direction the pair will take. However, with the resounding election win by the LDP and the markets expecting further easing by the BOJ this week, there is a strong likelihood of the yen continuing to weaken.
USD/JPY has again broken the 84 level, and the yen could continue to weaken, as the BOJ is expected to introduce further monetary easing. We could see the pair produce more volatility in anticipation of the BOJ meeting later this week.
• 13:30 US Current Account. Estimate -105B.
• 15:00 US NAHB Housing Market Index. Estimate 47 points.
• 23:50 JapaneseTrade Balance. Estimate -0.81T.
*Key releases are highlighted in bold
*All release times are GMT