After a brief period of uncertainty, Sanae Takaichi was elected as Japan’s first female prime minister early this morning. After she was elected chair of the LDP in early October, this seemed to be a foregone conclusion. However, after coalition partner Komeito surprisingly terminated the coalition following initial exploratory talks, the election, which was supposed to take place in the lower house on October 15, had to be postponed once again, Commerzbank’s FX analyst Volkmar Baur notes.
USD/JPY to continue trending sideways
“For a brief moment, it seemed as if the opposition parties would be able to agree on a joint candidate. In the end, however, the LDP reached an agreement with the Ishin-no-Kai party. For the time being, Ishin-No-Kai will not join the government, meaning it will not receive any ministerial posts. In return for its parliamentary support, however, a series of reforms has been agreed upon, including a 10% reduction in the number of seats in the lower house and a reduction in non-wage labor costs in the form of social security contributions.”
“Ishin-No-Kai is also interested in implementing spending cuts to balance the budget. Nevertheless, it wants to invest in strategic industries. We assume that an agreement can be reached with the LDP, at least on investments.”
“All in all, the general orientation of Ishin-No-Kai promises a somewhat more business-friendly policy from the new government. We continue to assume that inflation and the purchasing power of private households will remain important issues for the new government in order to improve public approval. Therefore, the new government is unlikely to support a depreciation of the Japanese yen, which means we continue to expect USD/JPY trending sideways.”
