Historic Developments in Japan to Have Major Effects on Forex

By: Mike Campbell
History was made in Japan at the weekend with the election of the Democratic Party of Japan (DPJ). The electoral success brought to an end a period of fifty-four years of rule by the Liberal Party of Japan (LPJ). Such a big change to the status quo is bound to have an influence on the Nikkei index and the value of the Yen, both in the short and longer terms when new political policies come into effect.

The outgoing LDJ were associated with a cautious approach to appreciation of the Yen against major currencies because of the damage it might do to exports which are critical to the fortunes of the world’s second largest economy. The electorate were seen as having grown disenchanted with a government that was highly bureaucratic and was perceived to be outward looking whilst the domestic economy was in turmoil.

The DPJ manifesto promised both social and economic change and it is believed that they will be less concerned than their predecessors about a strong Yen. The initial market sentiment showed a strengthening of the Yen and gains in the Nikkei. The closing value of the Nikkei 225 (1/09/09) was 10530.06, a gain of 0.36% on the previous close. The Yen has shown modest gains against Sterling, the Euro and the US dollar since this weekend’s election results came through.

European unemployment data for countries within the Eurozone was released today. The jobless total has risen to 15.1 million or 9.5% (seasonally adjusted); a ten year high. Throughout the European Union as a whole, unemployment is still rising; despite the official emergence of the French and German economies from recession. Higher levels of unemployment have a negative effect on consumer confidence and spending which hampers economic growth. Unemployment statistics tend to lag behind economic factors and it is likely that the figures will continue to trend downwards until the end of the year.