Asian stocks surged as the yen increased to a 15-year high before a vote in Japan for the next prime minister. The increase, however, did not help clarify whether the four-month spike in global equities will remain alive.
The yen has a history of being the currency of choice when the need for stability was high on the market, gaining also significant boosts in such times. Even with reports of economic growth in China and comfort that new banking regulations will not run equity prices high, investors are still trying to sort out whether to move away from safe-havens, such as the yen or the Swiss franc, towards higher-yielding but riskier assets.
Market analysts see signs of increased risk appetite, following improved data from the U.S. and Chinese markets, and they urge caution against jumping into risk trades, despite the rapid gains witnessed in recent days.
The race between current Prime Minister Naoto Kan and Ichiro Ozawa for Japan’s prime minister seat is too difficult to predict, and it could have a strong impact on how Japan will deal with deflation and resilient yen strength, which has lead Japanese stocks to underperform compared to similar advanced markets. However, analysts agree that, should Ozawa win the race, the yen would decline since he favors a government intervention to curb the 11 percent increase the Japanese currency witnessed this year.
The DXY index, which measures the U.S. dollar against six other currencies, fell to a one-month low, by 0.2 percent, as investors seemed to favor the yen and Swiss franc.