Political uncertainty comes to Japan – Commerzbank
|Ishiba Shigeru was supposed to be the savior a month ago. After scandals and public discontent forced his predecessor Fumio Kishida to resign, the plain-speaking backbencher was brought in to clean up the party and regain the public's trust. Now he faces the possibility of one of the shortest tenures of any Japanese prime minister in decades, Commerzbank’s FX analyst Volkmar Baur notes.
JPY is being pushed down by the political uncertainty
“His party and its long-time coalition partner, Komeito, have lost their majority in the lower house. It is unclear how the government will be formed in the coming weeks. In case of doubt, the election procedure is designed to allow a minority government to be formed – the prime minister-designate would only need a simple majority in the second round of voting. However, it is also unclear whether Ishiba will be forced to resign as a result of the disastrous election result for the LDP, and whether a coalition of opposition parties will be formed to form a majority without the LDP.”
“JPY has already weakened significantly against the US Dollar this morning and may continue to do so for the duration of the political uncertainty. A rate hike by the Bank of Japan at its meeting on Thursday now seems very unlikely, and political uncertainty in the US could be added to the mix next week. Potential policy decisions there, which could also affect Japan as an export nation, now face a political environment that makes strategic responses impossible.”
“In the medium term, however, a minority government or an unstable multi-party coalition could be cyclically positive for the JPY. Such a government would likely pursue populist policies, increase fiscal spending and postpone fiscal consolidation. In this case, the Bank of Japan may feel compelled to raise interest rates more aggressively.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.