The Japanese yen fell broadly in Asian markets on Monday at the start of the week against a basket of major and minor currencies, as selling pressure on the yen accelerated following Prime Minister Shigeru Ishiba’s announcement of his resignation in a press conference, stepping down from leadership of the ruling party, adding to political uncertainty in the world’s fourth-largest economy.
The end of Ishiba’s short tenure, which lasted less than a year, leaves markets cautiously awaiting the direction of Japan’s next government. Until a new leader of the Liberal Democratic Party is elected, uncertainty will continue to dominate the outlook for the country’s fiscal and monetary policies.
Price Overview
• Yen exchange rate today: the dollar rose against the yen by about 0.85% to ¥148.58, from Friday’s close at ¥147.35, and recorded a low of ¥147.91 during today’s session.
• The yen ended Friday’s session up about 0.8% against the dollar, marking a one-week high at ¥146.82, after bleak US labor market data strongly boosted expectations of at least two Federal Reserve interest rate cuts before year-end.
Ishiba’s Resignation
Prime Minister Shigeru Ishiba announced his resignation in a press conference on Sunday, after the ruling Liberal Democratic Party (LDP) suffered stinging electoral defeats recently that cost it a majority in both houses of parliament.
Ishiba explained that he chose the timing of his resignation after concluding a tariff-reduction agreement with the United States, which he described as a “national achievement,” calling it the “right moment” to step down and pass leadership to a new generation.
Political Uncertainty
Undoubtedly, Ishiba’s resignation will usher Japan into a new phase of political and economic instability at a time when it faces both domestic and external challenges, such as rising costs, escalating regional tensions, and global financial headwinds.
New Leadership
Ishiba confirmed he would continue his duties until a new party leader is elected, with the race now more open than ever. Names such as Sanae Takaichi, Shinjirō Koizumi, and Yoshimasa Hayashi are emerging as the top contenders to succeed him.
According to news reports, the party leadership election is expected to be held in October, amid an urgent need to restore internal stability and chart a new course for the post-Ishiba era.
Opinions and Analysis
• Carol Kong, currency strategist at Commonwealth Bank of Australia in Sydney: “Markets are worried that the next party leader will push for more fiscal expansion. Bottom line: the yen will remain under pressure in the near term.”
• Charu Chanana, chief investment strategist at Saxo: “With the LDP lacking a clear majority, investors will stay cautious until a successor is confirmed, keeping volatility high across yen, bonds, and equities.”
• Chanana added: “In the short term, this points to a weaker yen, a higher premium on Japanese government bonds, and a two-way flow in equities until the ruling party’s leadership outlook becomes clearer.”
• Hirofumi Suzuki, senior currency strategist at SMBC, on the Bank of Japan’s next step: “The probability of another rate hike in September was never high to begin with, and September will likely be a wait-and-see month.”
Sanae Takaichi
Investors are focusing on the possibility that Ishiba could be replaced by a figure supportive of easier fiscal and monetary policies, such as LDP veteran Sanae Takaichi, who has criticized the Bank of Japan’s rate hikes.
