Weekly Asset Heatmap

Weekly Asset Heatmap: Japan

Big moves may be on the horizon for JPY and 10-yr yields

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A rise in our BOJ signals indicates big moves in the yen and yields may be forthcoming.

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Salient threads in the digital debate driving this movement include:
  • Yesterday, Prime Minister Shinzo Abe called a snap election, which will probably be held October 22. Mr. Abe's popularity has been rising as the North Korea crisis escalates. Though some observers question the wisdom of his snap election gamble, our anticipatory political signal for Japan is rising in a pattern that tends to precede positive developments for Mr. Abe. Polling too suggests his party is far ahead of the opposition, though more than 40 percent of voters say they are undecided.
  • Last week, Mr. Abe told a gathering of investors at the New York Stock Exchange that he would pursue ”daring" tax, corporate, and investment policies to boost Japan's economy.
  • As North Korea-U.S. rhetoric grows increasingly bellicose, fears over further missile launches and weapons tests has put downward pressure on the yen.
Quant-Insight's USDJPY short term model, which currently has a high R-Square value of 72.16%, suggests that the YEN is currently cheap-to-model. Interest rate differentials appear to be the critical driver.

Predata's signal backtest engine shows that the YEN tends to depreciate when government sector volatility is high.

At the time of writing, the USDJPY was trading at 111.603 with a 1 month forwardimplied rate of 111.5085.
The Bank of Japan next meets on Oct 31.