JPY: Snap election uncertainty may offset safe-haven positive bias - ING

Japanese PM Abe announced yesterday that he would dissolve the diet later this month and call a snap election – most likely on October 22, notes the analysis team at ING.

Key Quotes

“The tactical move is aimed at shoring up the current coalition's two-thirds majority in the lower house, while also securing a mandate to press ahead with Abenomics and reflationary policies; the PM announced plans for a 2 trillion yen economic stimulus package, which would be used mainly for increased spending on child care and education. Investors may be wary of the positive implications of any modest stimulus, while the prospect of higher budget deficits – and a break from fiscal discipline – would warrant a larger fiscal premium in JPY assets.”

“Flaring US-North Korea tensions may well support safe-haven JPY flows in the near-term, though the election is a new source of uncertainty for the yen. For short-term investors, this could make CHF the preferred risk-off vehicle. Note USD/JPY 1M vols now trading above 10.”