USD/JPY: Agreement of Japan’s Democratic Party Saves the Yen

The Japanese yen won in yesterday’s trades by 11 pips versus the American dollar as US stocks fell caused by concerns about the federal budget debate. The USD/JPY is anticipated to continue to slide in today’s impending exchanges seeing that the Democratic Party of Japan agreed with two opposition parties on amendments to the deficit-covering bonds bill.

The aforesaid revision is believed to be a key condition set by Prime Minister Yoshihiko Noda for dissolving the Lower House for an election. Another discussion on selecting members for a national council to reform the social security system is also another condition Noda has set. In effect, speculation was growing that Noda could dissolve the lower chamber as early as November 22. Investor’s confidence is likely to escalate once the amendments are set in place, since the government is prevented to run out of money by the end of the month.

Meanwhile, majority of Americans expect the US to go over the so-called fiscal cliff at the beginning of 2013. Instabilities are seen in the US market as concerns about the automatic spending cuts and tax increases heighten. The market will react to each sound-bite coming out of Washington and if a budget deal isn’t reached, the economy will respond unenthusiastically.

Hence, since the proposed legislation for the bettering of the 2012 fiscal budget is likely to boost the valuation of the Yen against tribulations of the US’ fiscal cliff, a sell position is advised for the USD/JPY pair in today’s exchanges.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.