Japanese markets face the prospect of more instability while investors prepare for the departure of Prime Minister Shigeru Ishiba and guessing who comes next.
The yen fell up to 0.7%to 148.42 compared to the dollar, when the exchange markets reopened at 4 am, Tokyo time on Monday, after being among the weakest in the group of 10 last week.
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Although expectations for the eventual departure of Ishiba being present after their party’s poor electoral performance in July, investors are still trying to determine how much fiscal stimulus can come with possible successors and to what extent any change could slow down the next increase in the Japan bank’s interest rate.
“Although it is not yet clear who will be the next prime minister, it’s hard to imagine someone with a better or even equivalent fiscal discipline posture,” said KatsuShosi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management in Tokyo. “The poor performance of ultralishing deadlines, driven by tax concerns, will probably persist or even intensify.”
“The poor performance of ultralishing deadlines, driven by tax concerns, will probably persist or even intensify.”
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Any new increase in the income of US Treasury Securities (JGB) would be a matter of concern for global markets, which are aware of new side effects of Japan for debt negotiations in Europe and the US. Long -term income has risen due to new tax concerns in major economies.
The yen, which closed last week around 147.43 per dollar, will probably fall toward 149.10/20, said Tony Sycamore, IG analyst in Sydney.
Nick Twidale of ATFX Global Markets sees the possibility of an increase in interest rates by the bank of Japan being ruled out this year due to the political scenario. Iene will be “unstable and difficult to negotiate,” said Twidale. “Fees operators will also face a higher risk.”
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Swap markets suggest little or no perspective of action by Banco do Japan at its next monetary policy meeting later this month. They do not provide for a total increase in interest until April next year and show a chance of just under 50% increase until the December meeting this year.
Takuya Kanda, a research chief at the Gaitame.com Research Institute in Tokyo, had already warned on Friday that Iene was in danger of falling again to 150 in the country’s political scenario.
Opinions about Japanese actions have been mixed, as they are usually expected to benefit from more fiscal stimuli and a weaker yen.
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Uncertainty in actions
“In the Japanese action market, uncertainty about political perspectives should slow down, leading to a temporary high,” said Jumpei Tanaka, chief of investment strategy at Pictet Asset Management Japan. The attention will probably turn to who will be the next prime minister, said Tanaka.
Japanese actions may fall on the opening of Monday, in part due to the impact of US employment data, according to Hiroshi Namioka, chief strategist at T&D Asset Management in Tokyo. He added that Ishiba’s resignation was already expected, but not fully priced.
Possible candidates to replace Ishiba within the ruling party include Sanae Takaichi, former internal matters who is in favor of stimulus measures and would probably prefer that the Japan Bank had a more cautious view of interest rates increases.
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Takaichi, Kizumi
Agriculture Minister Shinjiro Koizumi, son of a former prime minister, will probably probably enter the dispute. Other names include Takayuki Kobayashi, former economic security minister Yoshimasa Hayashi, current chief secretary of Cabinet, and Finance Minister Katsunobu Kato.
“Our main scenario is Takaichi” replacing Ishiba, and she is widely seen as a moderate stance in both monetary and inspector policy, said Ken Matsumoto, Macro Strategist of Credit Agricole, who sees market prices inclined in that direction.
“Koizumi is kind of neutral, so if he wins, the situation can recover. Hayashi is another fiscal hawk, so there is a more level implication if he wins,” Matsumoto said.
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