Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened marginally in the Asian trading session supported by more risk-averse trading conditions overnight.
Key Quotes
“Volatility in the price of crude oil and the increasing risk of Donald Trump becoming President could both be playing a role is dampening investor risk sentiment in the near-term.
The price of oil has rebounded overnight following comments from Algeria’s energy minister stating that Saudi Arabia has offered to cut its output to January levels as he prepares to host a meeting of OPEC producers later this week. Saudi Arabia pumped a record 10.69 million barrels/day in August compared to 10.2 million in January. Algeria wants OPEC to agree to cut output by 1 million barrels/day. The oil market is seen as in a “much more critical state”. The IEA recently warned that demand and supply will take longer to rebalance weighing on the price of oil for longer. OPEC producers appear to be moving closer to reaching an agreement to restrict supply although a firm decision may not be reached as early as this week.
Recent opinion polls have shown a narrowing lead for Hillary Clinton which is increasing the risk of Donald Trump becoming President. According to polls tracked by RealClearPolitics Hillary Clinton currently holds a narrower lead of 2.5 percent. The first Presidential debate between the two candidates will be closely scrutinised tonight to see if Donald Trump can utilize to reinforce recent polling momentum which if successful could begin to weigh more on USD/JPY ahead of the election.
BoJ Governor Kuroda also spoke overnight commenting on the BoJ’s new policy shift to QQE with “yield curve control”. He stated that the main tool for more easing will be more cuts in the negative interest rate if required which is seen as more important than expanding asset purchases further although it is still an option. He continues to emphasize that there are no limits to monetary policy and that the BoJ will relentless pursue innovation. The limited yen reaction to the BoJ’s policy shift highlights that the market remains sceptical that it will materially lift inflation expectation in the near-term. As a result the yen is likely to remain of a firmer footing for now.”
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