Yen Weakens after Japan's LDP Loses Majority

The Japanese Yen was dealt a double blow with a LDP defeat and a rebound in equities. Prime Minister Abe is fighting to save his job after the LDP party lost its upper house majority. This means that any policies and reforms that Abe wants to pass in the future will probably be met with stiff resistance. The impact on the currency should be only short term however as long as Abe is not forced to resign.

The longer term driver of carry trades will be the global growth outlook and with liquidity conditions. Unfortunately August is never a good month for liquidity because of summer holidays. It is earnings season in the US right now, so keep watching the corporate calendar for more good or bad news. After tonight?s Japanese economic releases, there is nothing of consequence for the remainder of the week. We are expecting Japanese overall household spending, labor cash earnings, PMI, personal income and the jobless rate. Usually spending and earnings is the most important because they represent the weakest part of the Japanese economy. Retail trade last week was particularly weak. The lack of recovery in both is one of the primary reasons why the Bank of Japan has not been able to raise interest rates.