This weekend is the moment currency strategists have been waiting for since late May, when the rally in the US dollar against the Japanese yen stumbled sharply, and the market's faith in Abenomics – an experimental stimulus program designed in part to depreciate the yen – seemed to come into question.
The coalition spearheaded by Japanese Prime Minister Shinzō Abe's Liberal Democratic Party (LDP) already controls the Lower House of the Japanese Legislature, but this weekend's Upper House election will likely see it gain a majority there as well, putting it in control of the entire government.
"Japan's Upper House election on 21 July is expected to deliver a convincing victory for the LDP/New Komeito coalition," writes Deutsche Bank strategist Taisuke Tanaka. "If the partners win 63 seats, they would combine with their 59 uncontested seats to secure them a majority. Opinion polls indicate the coalition will most likely win 70-80 seats."
The implication for Abenomics, says Tanaka, is that "following the 21 July election, no election is scheduled until 2016, so the Abe administration will be able to tackle long-term issues."
That prospect has those betting against the yen excited once again, because those long-term issues – the structural reforms that take longer to implement than the fiscal and monetary stimulus measures that the government has already launched – are viewed as key to continued yen depreciation.
"Control of both houses would give PM Abe freedom to push through policies that should see the yen weaken significantly further," says Société Générale strategist Kit Juckes. "I think the move to USD/JPY 110 starts on Monday."
The dollar is trading today around ¥100.20.