Japan in focus after election sweep

We feel the Nikkei is the market to watch this week after having been savaged recently.

Over the weekend, Japan’s ruling LDP won the Tokyo Metropolitan elections in a landslide victory and strengthened its position in the region. This is a clear sign that the Japanese population is on board with Abenomics.  This will see Prime Minister Abe push on with his policies and look to keep the economic recovery on track. The recent strength in the USD was also timely and would have made the BoJ’s life a bit easier. 

USD/JPY is hanging around the ¥98 level after having printed a high of ¥98.29 last week.  Data ramps up for Japan later this week with household spending, the jobless rate, CPI, industrial production, retail sales, housing starts and vehicle production set to hit the wires on Friday. The market will be looking to see moderate improvement in these metrics to fuel further Japan strength.

While data is limited this week, there will be some Fed members on the wires including Mr Dudley and Mr Powell to look out for. A break above last week’s high will potentially see the pair edge towards ¥100 again. Yen weakness generally comes with Nikkei strength, and this could spark a strong recovery in the short term. We feel there are opportunities to go long the Nikkei at current levels around 13,300 with potential stops below last week’s low of 12583. Our potential target would be to 14,500.

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