Japan in focus on election talk

The Nikkei is set to trade at a fresh seven year high today, as investors respond to speculation of a snap election.

Japanese Yen
Source: Bloomberg

USD/JPY has led the way and continues to knock through barriers as the pair traded through ¥116.00  before some minor profit taking. There has been a lot of talk around Japan lately with reports suggesting the government is planning to postpone the consumption tax hike and hold a snap election. It seems the consumption tax hike is a key factor for elections, which are currently scheduled for 2016, and pushing it back will be a positive for Abe’s campaign. There have been reports that a sales tax hike will be pushed out as far as 2017 and this would be extremely bullish for equities. The Nikkei surged an incredible 2% yesterday and is likely to add to this today with our current call pointing up 1%. Back in 2007, the Nikkei traded through 18,000 and the way it is going at the moment, there is a strong possibility traders might be eyeing those levels this year. For now though, I feel the gains are a bit overdone and would prefer to buy the pullbacks in the Nikkei. Any pullbacks into 17,000 are likely to present the best value scenario with stops placed below 16,680 which is the bottom of the recent consolidation range. Initial targets will be to the 17,500 region.

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