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Forex Flash: Yen decline intact with little to disrupt momentum for now - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that after the stronger than expected employment report from the US on Friday, the USD/JPY rate has continued to drift higher and there was nothing during the Asian trading session to disrupt that momentum.

He writes, “In a relatively quiet trading day, the nomination hearings of incoming deputy governors Iwata and Nakaso got some attention although again, like with Kuroda yesterday, there was nothing surprising in what they said. Both offered support for more aggressive monetary easing by the BOJ and Iwata again emphasised the need for a notable expansion in quantitative easing. Iwata today stated that based on his analysis he believed that purchases of JGBs alone would be enough to bring about a 2% inflation target within two years, adding that the purchasing risky assets could be avoided completely.”

Halpenny notes that the formal end to nomination hearings in both houses of the Diet will now be followed by votes. He adds that the DPJ has again confirmed support for Kuroda and Nakaso but indicated opposition to Iwata based on his insistence that BoJ law should be changed to compel the BoJ to hit a target within two years. The DPJ remains the largest single party in the Upper House with 87 seats but the LDP with its long-term coalition partner New Komeito hold 102 seats.

Further, he adds that there are currently 6 vacant seats in the Upper House meaning that 118 is the current minimum majority of seats, in turn meaning that the LDP would require a further 18 seats before it held a majority. Your Party is the next largest with 12 and it remains highly probable that the LDP will manage to gain enough support even assuming the opposition of the DPJ – and that opposition remaining completely unified is also doubtful.

Halpenny notes that the only data from Japan today has been the consumer confidence report and like the Economy Watchers survey, it jumped again. He writes, “The increase from 43.3 to 44.3 in February brought the index to its highest level since June 2007 – further evidence of the benefits of Abenomics.” Still he finishes by noting that unless wages start increasing, consumers may soon find incomes squeezed as energy price increases start to filter through from the depreciation of the Yen, He writes, “Rumours of an early BOJ meeting once the new leadership is in place will continue to support USD/JPY.”

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