Re: EURJPY

Targets: USDJPY 1m 85.00, 3m 95.00 Japanese media reported overnight that DPJ former Secretary-General and party heavyweight Ozawa will likely challenge PM Kan for the leadership (and the Premiership as the DPJ still commands a lower-house majority). Political uncertainty is likely to increase along with policy deadlock, but given Japanese investors' traditional response to even domestically driven risk aversion could be yen buying, this may not constitute a downside risk for USDJPY. USDJPY has continued to drift higher in the last few sessions as the government rhetoric has increased but the pair is still sub-85, which has investors still on edge. Japanese PM Kan noted that he did not talk about intervention in a meeting with business leaders. However, he noted that cooperation between authorities would continue, and BoJ Governor Shirakawa will be attending the Jackson Hole meetings this week. The merchandise trade balance improved on the month, with export growth coming in stronger than expected at 23.5%y/y, and imports were down. The results may cause investors to further question the need for intervention at this stage, and we continue to doubt any prospect of the BoJ coming in the near term.