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The ASX 200 looks set for an open at 4918 (-0.9%) and while 4900 is still some way off, a close through this level would be a disaster for those with more optimistic souls and will represent the first consecutive three weeks of losses in 2016.
Locally, we should see BHP open down close to 3%, while the banks should be down between 0.5% and 1%. US crude is lower by 1.5% from the ASX 200 cash market close, while copper was smashed with price 3.1% lower in the same duration. Copper needs to hold $2.00 p/lb, but in terms of global drivers, sentiment pales in significance to oil and more specifically the JPY.
USD/JPY has taken a bath of late hitting a session low of ¥107.66, although it has rebounded to claim the 108 handle. This cross commands the centre of the trading universe and matters to Australia as the JPY strength highlights a general failure of Abenomics and the greatest monetary policy experiment ever. Japan’s move towards negative rates, amid a general inability to create substantial nominal GDP and therefore inflation, is now resulting in a wave of JPY buying.
Japanese corporates have been forced to hedge their foreign currency exposure (many had assumed a USD/JPY rate of ¥117.5), however there is little doubt that the speculators are having a field day pushing the pair down. There seems growing belief that the Bank of Japan are powerless to stop the rout. In saying that, USD/JPY is oversold and I suspect a bounce of sorts from current levels which could provide upside support to our call for the Nikkei to open 2.2% lower.