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JPY gains 0.4% over rumours of a potential snap election - Scotiabank

FXStreet (Barcelona) - Currency Strategists, Camilla Sutton and Eric Theoret, note that the JPY has gained 0.4% over rumours of a potential snap election, denied by political officials but highlighted by several media outlooks impact capital markets.

Key Quotes

"PM Abe’s approval ratings have drifted lower as the economy struggles under the weight of the consumption tax and uneven global economic developments."

"With the second tax hike looming, the government could delay it should the economy not have adjusted to the first. However this would prove difficult for Japan’s fiscal position and potentially drive credit downgrades from the major rating agencies. In September, S&P, who holds a AA– with a negative outlook suggested that Japan would be at risk of a downgrade if government debt to GDP did not stabilize."
"Polls suggest that Japanese citizens prefer a delay in the tax hike; a lower house election in mid-December could provide PM Abe with a chance to reset his approval ratings. Today, Governor Kuroda spoke in parliament suggesting that BoJ’s recent action was aimed at keeping positive momentum and not necessarily JPY; but warned on the importance of fiscal discipline."
"For USDJPY, the increase in political uncertainty is important and only complicates what is an already JPY negative environment. We expect USDJPY to trend higher this year and next, interrupted by periods of risk aversion."

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