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Strong Yen against Hamstrung Yoshihide Suga

  • wisepowder jack
    • 629 posts
     
    October 3, 2020 4:02 PM EEST

    Japan's Liberal Democratic Party (LDP) will elect a new leader to succeed the resigned Shinzo Abe as the next Prime Minister on September 14. This election, therefore, will be determined by the LDP factions rather than the country's public opinion. While Chief Cabinet Secretary Yoshihide Suga has taken a lead in the LDP's leadership race, he stressed to carry “Abenomics” forward with no novelty in his political platform.To get more news about WikiFX, you can visit wikifx official website.

    　　In fact, the mess in the country's economy cannot be cleared up whatever Suga's politics are. Not only is Japan's economy the worst among the major industrial nations, but the government's debt-to-GDP ratio is the world's largest, which is even more than Greece and Italy that are known to be in debt crisis.

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    　　Consequently, I hold a gloomy view that the Japanese equities may be too high to keep the upside as Suga is not capable to guide the country out of its slump. The Nikkei 225 index has regained 7,142 points (43.60%) to 23,500 from a March low of 16,358 and is approaching to the triple top that was formed earlier, with the largest resistance lying in the 24,448.5 of September 2018, which is also the high level of October 1991. This index is expected to retreat after seeing little chance of breaking through the triple top.

    　　A decline in Japanese stocks will trigger the unwinding of carry trade in the currency, driving a rise in risk aversion and strengthening the yen. At this stage, the weak U.S. dollar leaves limited space for the yen to drop sharply, with the biggest upper resistance against the yen between 107.04 and 108.16. On the contrary, if the Nikkei does fail to hit the top and fall steeply in the future, USD/JPY will have a chance to challenge the 104.19 low of July 31, where a breach below will see the yen showing its power. In addition to the election of the LDP's leader, investors should also pay attention to the central bank's interest rate meeting on September 17, noticing whether the monetary policy will change after the new Prime Minister takes office.