Yen Dives Further As LDP Won Elections

The Japanese yen drops sharply across the board today in reaction to news of Liberal Democratic Party's victory in the election on Sunday. As widely expected, the LDP returned to power, winning 294 seats out of 480 seats in lower house of parliament. Together with Komeito, the potential coalition government has 325 seats. Japan's Prime Minister-elect Shinzo Abe reiterated that his top priority would be "economic recovery and battling deflation."

Abe has been frequently quoted recently on his call for "unlimited easing" from BoJ. The central bank is expected to add another JPY 5-10T to its JPY 91T asset purchase and lending program this week. But it's believed that BoJ would not stop there and much more would be announced next year. In particular, a foremost thing Abe would do is to nominate a new Governor to replace Masaaki Shirakawa whose term ends in April. And BoJ would become more aggressive after that.

Technically, USD/JPY has taken out prior 2012 high of 84.17 today and would likely take on 2011 high of 85.51 soon, which is also an important long-term resistance level. EUR/JPY is trading above 110 psychological level for the moment and will take on 111.43 key resistance zone and break of which will be an important affirmation of long-term trend reversal. GBP/JPY's rally is still in progress for 140.02 key long-term resistance level. AUD/JPY will also likely take on 2010 high of 90.02 key resistance. NZD/JPY has indeed taken out equivalent level already and is trading above 70 psychological level comfortably.

In US, it's reported that House Speaker Boehner made a new proposal which would raise tax rates on the wealthiest people. The proposal called for raising USD 1T in tax revenues over 10 years, which is seen as higher than Boehner's prior proposal of $0.8T. Also, that called for a two-stage process, with a small scale deficit reduction by year end and a second phase the next year on tax code revamps. Rising of borrowing limit was also offered as part of the deal. A Democrat was quoted by WSJ as describing the act as a "breakthrough" in the negotiation. Nonetheless, it's believed that White House is still dissatisfactory with the increase in tax revenue.

Latest CFTC data showed Euro net shorts was at 31.6k contracts on December 11, relatively unchanged from prior week. Yen net shorts rose for another week, mildly, to 94.4k. Sterling net long was relatively unchanged too at 28.0k. Australian dollar net longs rose to another 2012 high at 103.4k. Canadian dollar net longs recovered back to 62.5k, comparing to prior week's 57.1k but was way off September's high of 111.9k.

On the data front, New Zealand Westpac consumer confidence rose to 111.1 in Q4. UK Rightmove house price dropped -3.3% mom in December. Eurozone trade balance will be featured in European session. Canada will release international securities transactions today. US will release empire state manufacturing index and TIC capital flows.