Japan’s Abe Boosts USDJPY
USDJPY broke above key resistance levels after the leader of Japan’s main opposition party again expressed a preference for a weaker yen, to be achieved via much looser BoJ monetary policy. We’ve heard such comments repeatedly over the past two months, but Abe’s views on economic policy have acquired a greater resonance since Prime Minister Noda set a date for a general election yesterday. US yields meanwhile remain depressed and threaten to go lower still as the US fiscal cliff approaches. This dynamic will ultimately set a limit on how high USDJPY can go, but for now political developments in Japan have become the dominant driver and could remain so for another few days. So we would be reluctant to stand in the way of this upward momentum for now – especially with the next BoJ policy decision only days away (on Nov. 20). US stocks had yet another bad day, taking cumulative losses since the US Presidential election to over 5%. President Obama made clear his desire to allow Bush-era tax cuts to expire in January, and said that the US could succumb to the fiscal cliff due to what he called Republican political ‘stubbornness’. The Australian dollar could ignore the US equity weakness no longer, and finally slipped to 1.0347 lows. Earlier, the FOMC minutes revealed that a number of participants at the October meeting thought more asset purchases would likely be needed after Operation Twist ends. This is the clearest indication yet that the pace of asset purchases under QE3 may accelerate as we cross into the new year. Indeed our US economists stick to their view that the Fed will expand QE3 on Dec 12tth so that it comprises of not only the current $40 bn worth of monthly MBS purchases, but also an additional $45 bn in monthly UST purchases. Today, Eurozone GDP and US jobless claims will likely be the key drivers. Fed Chairman Bernanke speaks too on the US housing market, but his appearance at the Economic Club in New York on Nov 20 will likely be more instrumental in guiding policy expectations.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank