Yen resumes New Year with more weakness

We start the New Year with the single biggest theme in Asia – Japan. The post Abe election period has been market by a steady market rally on the Nikkei and significant weakness in the Japanese Yen.

This was mentioned in our December 13 note titled “Traders cast votes ahead of Japanese election” In that note we wrote “A break above 88.00 in the coming hours could see the AUDJPY hold those levels and consolidate; a reversal could see the gap filled all the way back to 86.20-86.36 where we see solid support.”

The AUDJPY traded as high as 92.83 in early morning Asian trading today. That represents a gain of around 6% since our December 13^th note. It’s unclear how much lower the JPY will go not just against the AUD but also against the USD. There is no doubt the BOJ and Japanese exporters would love to see USDJPY near 100 – providing a much needed relief to the export sector. The next few weeks will contain a key insight as to the resources Japan will put together at fighting its sluggish growth issues.

The JPY will no doubt fluctuate on overall global risk sentiment, its fall has corresponded with lower US 10 year bond yields. We provide the following chart which shows AUDJPY performance relative to the ASX200 index. A pullback towards AUDJPY 90.00 should be met with some solid support – Australian equities are moving into reporting season next month with sound results in the banking space expected, while a US$150 per tonne iron ore price will go a long way to pleasing traders in key mining stocks like BHP Biliton, Rio Tinto and Fortescue Metals – all statistically significant.

Chart: AUDJPY vs. ASX200 index as of January 7, 2013. Sourced from Reuters.