The yen dropped to a seven-year low against the dollar as investors bet Japan’s Prime Minister Shinzo Abe will win an early election, renewing his mandate to pursue stimulative monetary policy and structural changes.
Japan’s economy has had a wild first 48 hours of the trading week. An abysmal Q3 GDP report, PM Shinzo Abe has pushed back next year’s planned sales tax hike and called for snap elections to take place in less a month to consolidate his political power.
Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6%.
The yen fell to a seven-year low versus the dollar on speculation Japan’s Prime Minister Shinzo Abe is considering postponing a planned sales-tax increase and preparing to call a snap election next month.
OPEC is giving oil bulls little to hang their hat on. Even the United Arab Emirates economy minister Sultan bin Saeed Al Mansouri said that declining oil prices will have not any material impact on their economy and that OPEC will not cut production.
Japan has long spoken about the need to address the nation’s aging population and offer better returns to meet growing pension pay-outs. It is finally addressing the problem, and the yen is falling accordingly.
The dollar strengthened to a seven-month high against the yen and government bonds fell before data that analysts forecast will show expansion in U.S. manufacturing. Commodities tumbled as oil and gold sank.
The USD/JPY has served as a perfect microcosm of the forex market as a whole over the past few weeks: volatility has gradually receded, causing the pair to consolidate in a tighter and tighter range and sapping the market’s patience.