USD/JPY: CAN THE DPJ DELIVER?

Despite the unusually large trading range, USD/JPY ended the U.S. trading session virtually unchanged. This is occurring as the new ruling Democratic Party of Japan officially takes office. It is arguable that the driving force behind yen strength for the past few weeks has been the optimism surrounding the landslide DPJ victories in Japan’s elections. However, now that the honeymoon period has ended, the new party has a lot to live up to. Their platform has surrounded massive spending programs, which many have claimed to be unreasonable considering current economic conditions. It may be a lose-lose situation for the new party as new spending will grow the deficit enormously and no spending would erode political support. This may be why the yen has taken a break in the past few days. Along with the new party comes a new Finance Minister. Hirohisa Fujii will be taking office and has already spread some pretty controversial statements regarding yen strength. Mr. Fujii does not believe in a weak yen and its lifting effects on the export industry. In addition, he has repeatedly proclaimed that he believes that intervention is unfitting in a “free economy”. These comments may come in light of the fact that one of the DPJ initiatives is to loosen US dependence, which may result in continued yen gains. The BoJ meeting is also scheduled for tonight but may be a non-event for currencies as nothing much is expected from the bank. The BoJ head has shown a lack of confidence lately which should postpone any significant exit strategy talks.Kathy Lien FX360.com

May The Force Be With You.
Eddie Azron.