Focus of the day:
"While our tactical bias remains for further yen strength – especially against the euro – with JPY TWI 2.5% stronger since the start of the month, and a plethora of counteracting forces coming into the fold, near-term yen risks are not one-sided.
On one hand, the allegation-induced resignations of two female cabinet ministers should put further pressure on PM Abe’s approval ratings. This decline in political capital could make the already uncertain fate of the expected 2015 VAT hike even less clear.
On the other hand, fresh headlines regarding the expected timing of the GPIF reforms and the potential allocations shifts, as well as the upcoming 31 October BoJ meeting and semi-that the central bank extends their QQE program – as inflation is falling short of their 2% target – the tenor and the language around the extension will be of interest.
All in all, while our bias for tactical yen outperformance remains – especially against the euro – our conviction since 8 October has moderated slightly. We continue to hold 14 Nov 14 EURJPY 134.65 puts in our model portfolio.
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