JPY: Another landslide victory for Abe: more of a relief yen-cross rally to go? - Nomura

Analysts at Nomura noted that the snap election result saw the ruling coalition (the LDP and Komeito) achieve another landslide victory - According to NHK, as of 2:00am local time 10 seats are still unknown.

Key Quotes:

"However, the LDP has won 283 seats, securing a single-party majority (233) easily again. 

Its junior coalition partner, Komeito, has secured 29 seats and in total, the ruling coalition has 312 seats. The coalition has achieved a super majority (310) again. Momentum in the new party created by Tokyo Governor Koike, the PoH, has not recovered, as the number of its seats has fallen to around 50 from 57 before the dissolution. 

Another new party created by the left-wing lawmakers of the DP, the CDPJ, has performed more strongly than the PoH, likely becoming the second biggest party.

The result of the LDP’s single-party majority with a large margin will reduce investor concerns about the domestic political situation significantly. When Prime Minister Abe called a snap election, he said he would step down if the ruling coalition failed to achieve a majority. Investor concerns over PM Abe’s early resignation and/or a lame duck status would have risen if the LDP had failed to secure a single-party majority. The outcome is more than sufficient for PM Abe’s survival, and his power inside the LDP stays strong.

The latest opinion polls already suggested a strong possibility of a ruling coalition landslide victory and thus, the outcome is likely unsurprising to the market. The options market still showed small hedging demand on Friday and thus, there is likely to be a small relief rally in USD/JPY. Historically, yen crosses tend to perform well after a snap election.

In the medium term, the outcome reduces the risk of a sudden change in economic policy stance. After the strong victory, the likelihood of PM Abe winning a third term as LDP leader has risen, and the LDP leadership election next September would be a smaller risk event. The ruling coalition’s strong victory also means PM Abe will very likely maintain his status to appoint the next BOJ leadership (governor and two deputy governors). Over the next six months, the BOJ leadership nominations will be a major risk factor for JPY trading, and the election outcome has reduced the tail risk of a hawkish shift significantly.

We believe the outcome will lead to further monetary policy divergence between the ECB and BOJ, and continue to recommend EUR/JPY long exposure."