How Election Outcomes Could Affect AUD and JPY

If you have read the international papers, you may know that there are two political developments that is worth paying attention to.

On August 21st, Australia held general elections for Prime Minister and if you recall, the votes were so tight that nearly 2 weeks later, there is still no clear winning. The country is in a political deadlock but thankfully this matter could be resolved in the coming week as Julia Gillard secures the support of a key independent Member of Parliament. Given how long the process has been drawn out for, the Aussie may rally as long as there is winner.

Meanwhile Japan has a leadership election within the Democratic Party on September 14th. This is not an open election but a secret ballot. The former secretary general of the ruling Democratic Party of Japan, Ichiro Ozawa, has already begun his campaign against Prime Minister Naoto Kan. Ozawa pledged direct government intervention in the currency market in his policy platform stating “as for any sharp rises in the Yen from now on, I will decisively take all possible measures including market intervention to protect Japan’s economy.” Elections for the top DPJ post are slated for later this month and if Kan loses, Ozawa would become Japan’s sixth Prime Minister in 4 years.

Based upon his comments, the Yen has become one of the key political platforms that Ozawa is running on.

This may pressure Kan to act on the Yen before the election if only to keep his job. Ozawa also promised 2 Trillion Yen or $23.7 Billion in economic stimulus, a measure double the size of that planned by Prime Minister Kan. To Kan’s credit, however, he intensified his tone of Yen comments by telling reporters today “excessive movement in the currency market is bad for the economy and financial markets,” and “I have the utmost recognition of this. We will take decisive action when necessary.”

A win by Ozawa would probably be positive for USD/JPY and negative for the Japanese Yen in particular because of his criticism against a strong currency.

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