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Yen weakens as the snap election speculation gathers momemtum - DB

FXStreet (Barcelona) - Analysts at Deutsche Bank comment on the press reports mentioning building momentum building for a snap election in Japan as Prime Minister Abe looks to seek a popular mandate and push back on the proposed second consumption tax.

Key Quotes

“Reports are suggesting that a decision could be made as early as Tuesday next week with a possible lower-house election on the 14th or 21st of December (FT). At a press conference yesterday in Beijing, Abe was quoted as saying that he ‘has never made any reference to the dissolution of parliament’, this came after the chief cabinet secretary Suga saying that the decision on whether or not to go to the polls would be Abe’s only.”

“Our Japanese colleagues yesterday noted that they were under the impression that the government is trying to speed up policy implementation and therefore this could be seen as sign that a general election could be planned sooner than expected. They do however note that if the consumption tax was to be postponed, then the social security sector will likely have to take more of the burden which means a radical restructuring of such system could be deemed necessary.”

“Given the recent monetary easing by the BoJ, a delay in the consumption tax could cause something of a change in the cooperative relationship between the government and the BoJ following the joint declaration in January 2013 which mentioned that the government would ‘promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management’.”

“At first glance the market seemed to welcome these developments. The Nikkei closed +2.05% yesterday and is up another 1.3% this morning to a new 7 year high. The JPY however hit a low of 116.20 against the Dollar (a seven year low) but is now off those lows at around 115.6 as we type.”

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