As the campaign for the snap general election on Tuesday kicks off, Japanese investors are bracing for greater volatility in the bond market, the risk of government intervention in the foreign exchange market and frequent fluctuations in stock prices.
After concerns over the government’s generous spending triggered a bond market crash, causing investors to suffer losses and potentially raising the government’s debt servicing costs, every twist and turn in the debate over government spending and tax cuts has been closely watched by the market.
Prime Minister Kishida Fumio’s plan to suspend the consumption tax on food for two years and her aspiration to enhance military strength are influencing the stock market, with some people rejoicing and others worrying. As the voting day on February 8 approaches, the fluctuations of the Japanese yen are also affecting domestic and foreign asset prices.
With only two weeks left until the general election, although Ko’s approval rating has dropped recently, it still remains above 60% in most opinion polls, indicating that he still enjoys considerable support.
Traders are generally betting that voters will solidify Kishida’s position, thereby encouraging her to push for further stimulus measures. From a broader perspective, the trading strategy named after her bets on a rising stock market, a weakening yen and falling bond prices, which in turn boosts yields.
“We are very likely to return to the traditional high-yield carry trade,” said Ryutaro Manabu, a foreign exchange and interest rate strategist at SMBC Nikko Securities, but he also cautioned that there is considerable uncertainty surrounding the yen.
Maruyama said, “After the snap election, the dollar still has room to rise against the yen.” He pointed out that there are signs that Japan and the United States may join forces to support the yen, which will make it difficult for the yen to break through the range of 156-157 yen per dollar. “However, if there is no intervention, if the exchange rate breaks through this range, it could soar above 160 yen.”
Technical analysis:
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Gold: The overnight price fluctuated widely. After sweeping the liquidity below 5000, it has now returned to consolidate above the 5050 bull-bear dividing line. It is recommended to continue to pay attention to the bullish signal within the day. The 5000-5030 range has both a demand zone and a liquidity sweep area, which is the key focus area for the day. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: The price dropped to a low of 25,452 overnight, 53 basis points away from our green zone buy limit. Subsequently, the price rebounded strongly and touched above 25,800. The key demand zone and liquidity sweep area to watch for today is in the 25,500 – 25,600 range. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The price failed to break through 61.50/55 yesterday, but also did not sweep the liquidity below 60. Therefore, we will continue to pay attention to the long signal after sweeping the liquidity near 59.50-60 today. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
23:00 US Conference Board Consumer Confidence Index for January
