USD/JPY has started the week with gains in the Monday session. In North American trade, USD/JPY is trading at 113.71, up 0.18% on the day. On the release front, there are no US events on the schedule. In Japan, Flash Manufacturing PMI improved to 53.1 points.
On the weekend, Prime Minister Shinzo Abe cruised to an easy victory, as Japanese voters elected representatives to the upper house of parliament. Abe’s Liberal Democratic Party and a small junior coalition party won a convincing victory, winning at least 312 seats out of 465 seats in the lower house of parliament. The result gives Abe a two-third majority in both seats of parliament, and will allow him to continue his policies. We can expect to see the ultra-loose monetary policy continue until inflation moves closer to the Bank of Japan’s target of around 2 percent. Although Abe won a decisive victory, his popularity remains low. The LDP took full advantage of a divided opposition which failed to provide the Japanese voter with a credible alternative. The Tokyo stock markets posted gains after the election, but the Japanese yen responded with slight losses.
Investors are keeping close tabs on the next choice for Federal Reserve chair, with Janet Yellen’s term due to expire in February. President Trump has said he will nominate a new Fed head shortly. The front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen’s monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump’s choice for the new Fed chair could have a significant effect on monetary policy and the strength of the US dollar.
