Japanese Yen (JPY) Exchange Rate Slides amid Election Speculation

The Japanese Yen (JPY) has come in for a rough ride this week, with the currency falling to a seven-year low against the US Dollar (USD/JPY). The Bank of Japan’s decision to roll out a fresh batch of stimulus measures undermined demand for the safe-haven asset in the aftermath of the central bank’s policy announcement. The currency has since consolidated and extended declines as a result of political uncertainty. Deliberations over the introduction of an increase in sales tax have kept the Yen under pressure, and the prospect of a snap-election being held in December has inspired further Yen declines. The currency has now fallen by over 8% against the US Dollar in the last month. The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was also able to advance by over 0.3% in spite of some serious underlying weakness in the Pound.

Next week Japan’s Prime Minister Shinzo Abe is scheduled to hold a press conference and confirm that the hike in sales tax will be delayed. He may also offer more information as to why he intends to dissolve parliament. The USD/JPY exchange rate was trading in the region of 116.3200 on Friday having achieved a high of 116.3900. According to industry expert Derek Halpenny; ‘A sales tax delay and snap election is Yen-negative. We’ve had swings to and fro in relation to that. If there’s a press conference and it’s confirmed, we’ll get a knee-jerk further move and perhaps we’ll test 117 but at those levels we could correct a little bit.’

There were no Japanese reports with the potential to inspire further Yen movement published overnight. Earlier in the week the nation’s Capacity Utilisation and Industrial Production reports both surprised to the upside. That being said, Japan’s measure of Consumer Confidence declined in October, as did the nation’s Current Eco Watchers Survey. The Japanese Yen could extend declines against the US Dollar (USD/JPY) before the weekend if the US retail sales report and University of Michigan Confidence index show the improvement expected. Retail sales are believed to have increased by 0.2% on the month while the gauge of sentiment advanced from 86.9 to 87.5. Japanese data to watch out for next week includes the nation’s annualised third quarter growth figures, housing loans data, the Bank of Japan’s Monetary Statement and Japan’s all industry activity index, leading index and coincident index.