JPY: Scope for further strength from here – MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the most obvious FX move post a weaker NFP print would be a drop in USD/JPY through the 100.00 level.

Key Quotes

“At levels below 100.00, we suspect the momentum in favour of the yen will start to ease but there remains scope for further declines over the short-term. While the yen is cited as a “safe-haven” currency, the flow of funds for the month of June, released today, suggest otherwise. Foreign investors sold JPY 434bn worth of Japanese equities and JPY 997bn worth of Japanese bonds and notes. Foreigners did buy JPY 887bn worth of money market securities. However, foreign investors have sold a massive JPY 6.1trn of money market securities since the yen surge began at the end of January. But huge surpluses continue to build on the current account. The year-to-date current account surplus totalled JPY 9.7trn after the May data was released today, up from JPY 7.5trn in the same period last year. Foreign investors do not look to be rushing to Japan, it’s more about investment income surpluses from abroad being brought home.

Japan will hold the Upper House elections on Sunday with half of the 242 seats being contested. One key question is whether PM Abe’s party, the LDP along with its coalition partner, New Komeito and other right-leaning Upper House members in favour of constitution revision win enough seats to hold a two-thirds majority. The number required for that would be winning 78 of the 121 contested seats. The LDP needs to win 57 to hold a majority in the Upper House on its own while a 61-seat victory for the coalition would mean Abe’s stated objective of winning a majority of seats was achieved.

Whether or not constitution reform becomes viable, a good performance for the LDP would at least strengthen PM Abe’s resolve to push ahead with fiscal stimulus support that he indicated was forthcoming when Japan held the G-7 summit in May.”