Japan election result weakens the Yen

In Japan the Liberal Democratic Party (LDP) has won a landslide victory in the lower house election. Japan election result weakens the YenThis opens the door for a significant change of policy by the Bank Of Japan in an effort to try to assist the economy and weaken the Yen to encourage exports.

The LDP is in a strong position to push through its agenda as it will have a two third super majority in the lower house and this raises the pressure on the Bank Of Japan at this week’s meeting to step up to the plate.

The overall long term sentiment will now favour a weaker Yen as the new government will aggressively support a weaker Yen through monetary and fiscal policy.

In other news the US’s Fiscal cliff negotiations are still dominating the markets as we get closer to the deadline.

According to press reports there are some signs of concessions and this seems to have led to optimism for the week ahead for an agreement to be formed.

However there is a risk that if negotiations stall then we may see the markets flip back into risk off mode later in the week.

We have later in the week the info survey from Germany and Mario Draghi addressing the European parliament committee on economic and monetary affairs.

The markets will be looking for signals from Draghi on whether the ECB intends to cut rates or whether it will introduce negative deposit rates.

In the US we have inflation, durable goods and PMI data which will be closely eyed especially if we are not seeing progress on the cliff.

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