Summary:

• Japanese PM Shinzo Abe calls an early election for 22 October
• Abe aims to benefit from opposition disarray and his harsh attitude to North Korea
• A 2 trillion JPY spending package ordered to be implemented before the end of the year
• USDJPY remains on the rise, further upside still on the cards

The latest weekend brought long-awaited results of general elections in Germany and New Zealand. However, it doesn’t mean that all themes related to politics are already done for this year. Another story came from Japan where Prime Minister Shinzo Abe chose to call a snap election earlier in the day in order to reinforce its grip over the Parliament amid opposition disarray and promising polls for his party. The election will take place 22 October, whereas the Parliament is to be dissolved this Thursday (26).

Moreover, it’s likely that PM Abe could have already gained more endorsement due to his hard line against North Korean ballistic missile and nuclear weapons programs. It’s also interesting that the Abe’s testimony came on the heels of an announcement delivered by Yuriko Koike who is the governor of Tokyo. She announced the formation of a new party that could give conservative voters an alternative to Abe’s ruling Liberal Democratic party (LDP).

On top of that, Abe also pledged to implement a 2 trillion JPY ($18 billion) spending package before the end of the year in order to expand access to education and cut waiting times at child-care centers. He said he would make use of revenue from a planned consumption-tax hike set to take effect in October 2019. That decision seems to be in accordance with the last announcement from the Ministry of Finance that decided to push back a date of budget balancing from 2020 to later in the decade.

To sum up, a joint stance of the Ministry of Finance and the Bank of Japan as far as unprecedented stimulus is concerned appears to be unfazed. Let’s recall that both institutions pledged to work together to stabilize the economy. Even as the Japanese currency could feel some pressures owing to the oncoming snap election, it’s unlikely that JPY’s under-performance could yet deteriorate because a result seems to be a done deal and the JPY tends to be mainly driven by external factors such as the US yields and risk appetite.

The USDJPY seems to be well priced against the US 10Y yield. Source: xStation5

Technically, the USDJPY remains little changed on the day mainly on the back of quite neutral risk environment. The pair is well priced against the US 10Y yield which serves as a notable indicator for the pair. Taking into account a daily time frame one could assume that bulls could be poised to storm higher until a support zone placed at 111 remains unfazed. The closest target for buyers might be found at 114.3.