US Dollar Starts New Week On Firm Note

The US dollar is enjoying modest gains against most currencies as prospects of both tax reform and additional monetary tightening by the Fed carry over from last week. The strong showing of the Liberal Democrats in Japan, where the governing coalition has maintained its super-majority is seen as confirmation of continuity. This helped lift Japanese shares and weighed on the yen. The Nikkei advanced 1.1%, the most in a month, and extends the advancing streak to a record 15 sessions. The Nikkei is at 20-year highs.  

The dollar gapped higher against the yen. The pre-weekend high was JPY113.57 according to Bloomberg, and today’s low has been JPY113.62.The greenback briefly traded to JPY114.10 in early Asian turnover, the highest since mid-July. The low was recorded late in the Asian session.  

Abe’s victory is seen as giving his constitutional reforms new impetus. However, polls suggest the LDP is more popular than Abe and polls show the public still needs to be persuaded about the need for the constitutional changes. A Yomiuri polls earlier this month found a little less than half of the public support the changes and a survey by Asahi last month found a little more than a third favored the changes.Recall that constitutional changes need to be approved in a public referendum.  

The debt markets are giving little hint that Spain’s government is set to proceed with removing Catalonia’s autonomy or that the Catalans are going to resist. The 10-year Spanish bond yield is off nearly three basis points,and the premium over Germany is edging down. Prime Minister Rajoy, who heads up a minority government has the support of the Socialists, Ciudadanos, many businesses in the region (which accounts for 20% of Spain’s GDP)and the army. To invoke Article 155, Rajoy needs the approval of the Senate, which is expected over the coming weekend.