At stake in this Sunday’s election are seats in Japan’s lower house of Parliament or the Diet. In total, 480 member seats are in consideration, with 63% or 300 seats being selected by popular majority. The other 180 are chosen through their respective party lists. A dominant position in the lower house will allow the newly elected prime minister, and his political party, to easily pass new measures that adhere to his party’s mandates.
Although there are as many as 8 candidates vying for the position of Prime Minister, two main party leaders are at the forefront – DPJ Prime Minister Yoshihiko Noda and LDP Leader Shinzo Abe.
Prime Minister Yoshihiko Noda has seen his popularity drop in recent years. Since taking office in September of last year, the DPJ front man has added to already growing public discontent with the Democratic Party of Japan. Most notably, PM Noda pushed through a bill that would increase the country’s sales tax from 5% to 10% over the next 3 years. In the past year, Noda has attempted to appeal to the public’s national loyalty by denouncing claims by Chinese officials over contested islets between the two nations.
Liberal Democratic Party President Shinzo Abe is countering PM Noda’s claims of higher taxes, saying that more spending is needed for economic stability. In particular, Abe has announced his commitment to additional monetary stimulus by the Bank of Japan, as well as an inflation target of 2-3% - in order to combat notions of deflation. Incidentally, Abe isn’t an inexperienced politician. The party head was elected the country’s prime minister in September 2006, but promptly resigned 1-year later in response to plunging popular opinions.
On the one hand, if PM Noda is re-elected to head the country, it would mean business as usual – spelling a decline for the USDJPY, possibly back to an exchange rate around 80.
However, if Abe is elected, prospects run high that the USDJPY rate will rise to circa 85.50.
The USDJPY bullish support is being bolstered by the fact that an Abe administration will likely weigh in on Bank of Japan decisions in the future – making it highly likely that more stimulus in the world’s third largest economy will be forthcoming. The measure will undoubtedly debase or weaken the yen further, particularly against the US dollar.
The notion matches the USDJPY technical outlook as the price action has already broken through 83.06 fib resistance. Subsequently, the violation should open the door for a move to 85.32, with any near term correction likely to be held at bay by the 83.00 round figure.
Source: FXTrek Intellicharts