Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to weaken in the Asian trading session following on from its largest daily decline yesterday since the 31st October 2014.

Key Quotes

“The Upper House election results have fuelled speculation that the government will now significantly boost Abenomics policies heading into the autumn, which had previously helped to weaken the yen. However, our analysts in Tokyo remain sceptical that the government will be able to successfully re-weaken the yen in the current unfavourable external environment. The effectiveness of policy easing measures in Japan is also diminishing as a weight on the yen.

For the yen to re-weaken more materially there would have to be a  significant step up in Abenomics policies and not just more of the same that we have seen in recent years. It is in this light that reports this week that former Fed Chairman Bernanke has been meeting with BoJ Governor Kuroda and Prime Minster Abe in Japan are encouraging speculation that the BoJ maybe about to embark on a more aggressive form of monetary easing which could move it further in the direction of “helicopter money” by more closely combining fiscal and monetary policies to support growth and inflation.

A large fiscal stimulus package totalling between JPY10 and 20 trillion is expected to be unveiled soon. Prime Minister Abe has stated he will tell former Fed Chairman Bernanke that he wants to accelerate Japan’s exit from deflation. For the yen to continue to weaken, Japanese policymakers will now have to meet those raised expectations for more decisive policy action.” 

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