On 16 December, Japan goes to the polls, and the financial markets are convinced that FX is the best way to play the outcome, namely through a lower JPY. After frequent false starts, the recent sell-off in the JPY shows greater conviction. Might the consensus, which for years has mistakenly clamoured for a sliding JPY, finally be correct? We suspect not. The current front runner for the prime minister’s job, Shinzo Abe, leader of the opposition LDP, has called for a radical easing of monetary policy, and this has undermined the JPY for now. But the test for JPY bears will be delivery on these pre-election suggestions. Some aspects are already being challenged as unrealistic, others might reportedly be ruled out as illegal, while some may be resisted by the BoJ as simply too radical. There is no certainty, but the FX market appears determined to anticipate the more extreme of outcomes. It is a bias which once again leaves the JPY bears vulnerable to disappointment.
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