The Japanese currency slipped to a fresh 7-year low today, on improving risk appetite and reports that an early Japanese election could be called and that a planned sales tax increase next year would be delayed.
An early election – possibly before the end of the year – would most probably lead to a renewal of Shinzo Abe’s mandate for 4 additional years and that would prevent the further erosion of his popularity if the economy fails to rebound.
The reelection of Abe’s government could also lead to the continuation of the stimulus policies. Another important issue with early elections is that it would probably delay the implementation of the sales tax, following the economic slowdown that resulted after the previous sales tax increase in April from 5% to 8%. The additional sales tax hike could prove even less popular.
The overall effect is that stimulative policies are likely to stay in place for longer – especially after the recent announcement by the Bank of Japan that it would increase its pace of asset purchases to 80 trillion yen per year. The Nikkei 225 stock index rose by more than 2% on the day and the yen crashed further, as dollar / yen extended its recent rise to top 116.
News that the current account surplus exceeded expectations in September had little uplifting impact for the yen given the reports about politics and policies. The current account surplus rose to 963 billion yen while the expectation was for 534 billion. The previous month’s figure was 287 billion. The improvement in the current account had more to do with higher investment income during September. It was the highest current account surplus since March of 2013. The biggest components, exports and imports, both rose by roughly similar and imports were bigger than exports by around 700 billion yen during September.