Take profit on tactical long JPY-GBP (+2%) as target exceeded
It was a good week for JPY and an especially bad one for GBP. JPY proved resilient - despite DXY strength - on more ambiguous-than-priced Abe/LDP reelection prospects. GBP suffered as Tory Party conference highlighted: internal dissent (despite Boris Johnson's assurance he's behind "every syllable" of PM May's Brexit strategy), unsatisfactory "progress" from across the negotiation table in Brussels and even criticism from across the Atlantic (Trump on EU-UK agri trade deal). Poor UK PMI also a reason to doubt fundamental basis for an imminent BOE hike.
'Distraught' PM May Could Be Gone By Christmas as Up to 30 MPs Plot to Oust Her After Disastrous Party Conference Speech - Telegraph (5 Oct)
UK PM May Tory Speech Battles Coughing Fit, Prankster, Falling Scenery - WSJ
Brexit: “Lack of clarity or even disunity—at other side of negotiation table" a "big worry" - EU p'ment Verhofstadt (4 Oct)
US trade: Trump opposes EU-UK agri-deal in blow to May’s Brexit plans (6 Oct)
I close the tactical trade idea to long JPY vs short GBP at a larger-than-expected profit of 2% after exceeding our target (GBP-JPY: 148, entry 150.1). Trade rationale found in this blog post ( link ) earlier this week: http://www.emgist.com/single-post/2017/10/02/Japan-JPY-Turn-tactically-long-yen-on-Abe-ratings-slip-through-Yellen-Wed
Strategically, I keep the short GBP bias (watch if list of dissenting Tory MPs grows from 30 to 48 needed for leadership change, if poor data cast doubts on Carney/BOE hawkishness).
In contrast, JPY is tougher to call now as the baseline scenario of Abe/LDP victory must be weighed against the risk of reduced parliamentary mandate (current 86%) amid Koike criticism of Abenomics (this has not yet peaked). Will markets care more about the headline (Abe win, ref: Merkel in Germany), the "delta" (opposition gains seats, ref: AfD in Germany) or the "quality" of win (eg if Abe reverses call for VAT hike to fund spending or compromises on constitution reform)? This remains to be seen.
Japan election: Abe 46% vs Koike 33%. >50% oppose constitution change under Abe, 1/3rd favor - Kyodo poll (3 Oct)
Japan: Support for Abe's LDP -7ppts to 30.8%. Koike's new party 5.4%. 40.4% undecided - NHK poll (3 Oct)
Japan election: Tokyo's Koike says won't seek seat - Reuters (5 Oct) JPY (-) but watch if Abe majority shrinks JPY (+)
Japan election: Tokyo Gov Koike’s Party of Hope to field 191 candidates vs indicated >200, opposes Abe: nuclear phase-out, no VAT hike (2 Oct)