Upper House Elections in Japan and the Yen

Japan goes to the polls on July 29 to elect half of the upper chamber of the Diet called the House of Councilors. The Liberal Democrat Party, the main political party in Japan, with the New Komeito Party, is unlikely to hold on to their slim majority. However, barring a horrific showing which forces the LDP to dissolve the lower house and call for snap elections, macro-economic policy is unlikely to be impacted. The government will still likely press ahead with revisions to the nation’s tax regime and efforts to normalize fiscal policy. The BOJ will continue to raise interest rates and we expect the next 25 bp hike to be delivered in Sept, with the odds favoring another hike by the end of the year.

What it Takes for the Dollar to Recover

Clearly any recovery in the dollar requires someone to buy it. It may be a worthwhile exercise to consider who would buy the dollar. Among short-term players, using the IMM Commitment of Traders, anecdotal and proprietary data, speculators have amassed a large short dollar position. The net short US dollar positions in the futures market stand near record highs. The trade is crowded and in such market conditions, it does not take much to spark a short-squeeze.

The Word is Resilience

Even with the disappointing US June retail sales report, the take away point from recent developments is the all-round resilience of everything, but the US dollar.

The Rise of Retail

The global capital markets are usually understood to be the domain of large pools of capital and institutions. Mergers and acquisitions are increasing the consolidation and concentration in the financial sector. While this is clearly one theme, there is a second one that runs in the opposite direction. For various reasons, there has been an increased role of individual and retail investors. While this may not be a universal phenomenon, there are several markets where the role of retail participants is noteworthy. This short note looks at two such markets: Chinese equities and the foreign exchange market.