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The yen had a roller-coaster ride of 贸易 as markets digested the shock of Shigeru Ishiba’s surprise win in the leadership race for Japan’s ruling Liberal Democratic Party. At one point, it dropped as much as 0.5 percent and traded at as low as 142.95 yen per dollar early in the Tokyo session on Monday. Later, it changed direction, climbing to 141.65 yen in the afternoon. It came after a sharp 1.9% surge on Friday after news of Ishiba’s unexpected election win over his dove opponent, Sanae Takaichi. In counterpart action, Japan’s benchmark Nikkei 225 Stock Average ended down by 4.8%, reflecting the market’s reaction to the political surprise.
It also shows the market reaction to moving in line with Ishiba’s policy outlook and his reassurances over the weekend that the current course of monetary easing by the BOJ would remain intact. Ishiba was trying to reduce fears that there would be a sharp adjustment to economic policy, as he is seen as much more hawkish than his opponent. This volatility, according to Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. in Tokyo, was mostly because the market had priced in a Takaichi victory whose monetary policy stance was more accommodative. An apparent attempt by Ibaha to dial back his hawkish persona was an appearance meant to assuage the markets.
Ishiba also said he would dissolve the lower house of parliament, with a general election called on October 27, expected to take place next month when he takes Japan’s new prime ministership. Kyodo News reported that Katsunobu Kato, a former health minister that supported Abenomics, may become the next finance minister. Kato was quoted as saying in an interview given to Bloomberg last month, “Japan should seek to make the interest rates and price developments consistent with the attainment of growth targets.”.
Masafumi Yamamoto and Masayoshi Mihara at Mizuho Securities say that the monetary policy track Ishiba is apparently to take is broadly in line with that under the previous Kishida administration, which respected Bank of Japan’s independence and did not actively press for higher interest rates. Given that, the upside potential for the yen to keep appreciating through Ishiba’s preparation of forming his new cabinet is limited, their assessment says.
Late trading strength in the yen, against both the dollar and the euro, hinted that it may still be positioned for unwind gains from yen-selling and dollar-buying that precede a Takaichi win. As of late, traders were “still readjusting their positions,” said Hideki Shibata, a senior rates and foreign-exchange strategist at Tokai Tokyo Intelligence Laboratory Co.
Traders will be watching for U.S. payrolls, which can impact policy as determined by the Federal Reserve. A strong number that fits into expectations for a 75-basis-point rate cut can impact the dollar-yen. If it does not come, the dollar continues higher versus the yen. Market bias to a lower dollar-yen rate is easing on the downside, as hedging premiums are below last Friday’s high 1.27%
Recent market Fluctuations highlight changing trader sentiment, this time prompted by increasing political uncertainty and mixed messages on the economy. The Japanese yen firmed last week after traders did a reappraisal of strategy in the face of caution. While big news is ahead-U.S. employment data-will likely keep influencing the direction of the yen, bigger macroeconomic forces will remain in charge of the latter’s developments.
