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The next stage in Japan

The Japanese election results were always about the extent of Abe’s victory, rather than whether he would win. The headline results were positive, with two-thirds of seats won in the lower house, but voter turnout was at a record low, which says a lot about voter apathy towards the further reforms Abe was supposedly trying to get a fresh mandate on. The yen was barely moved on the news, retaining the firmer stance gained over the past week. The key quarterly Tankan survey was also out overnight, with mixed messages on the economy. The manufacturing indices were weaker than expected, interesting given the weaker yen. The non-manufacturing series were better, so overall the data were not sufficiently out of line to alter the outlook.

We are entering the last full trading week of the year. The main focus will be with the US interest rate decision on Wednesday and within that, the potential for any change in language to better indicate the timing of any rate hike this year. We suspect that the Fed will want to keep things pretty much unchanged at this point in time. Even though the labour market continues to show signs of improvement, inflation expectations remain muted and the Fed will likely want to see some change here before it considers signalling the potential for higher rates to come. We also see inflation data in both the UK and the US. Oil prices continue to stand on the weak side, with the Russian currency once again coming under pressure and standing not that far below the 60 level on USDRUB.

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