<\/p>\n
Shigeru Ishiba departs after resigning during a news conference in Tokyo, on Sept. 7.<\/p>\n
(Bloomberg) — Japanese markets face more instability as investors prepare for the departure of Prime Minister Shigeru Ishiba and the guessing game of who comes next.<\/p>\n
Most Read from Bloomberg<\/p>\n
The yen slid as much as 0.7% against the dollar in early trading Monday, after being among the weakest of its Group of 10 peers last week. Japanese stocks, which often benefit from the currency\u2019s depreciation, advanced. They remain exposed to cross currents that make choppy moves likely.<\/p>\n
Long-maturity Japanese sovereign bonds stand out as being particularly vulnerable to selling when trading gets underway, given heightened concerns over government spending. The rally in US Treasuries on Friday has some potential to temper the initial moves in Japanese debt on Monday. Futures for the benchmark 10-year bond were fractionally higher.<\/p>\n
WATCH: From the US to Japan, governments are having to pay investors more to get them to lend money by buying bonds.Source: Bloomberg <\/p>\n
Although expectations for Ishiba\u2019s eventual departure have been present following his ruling party\u2019s poor election showing in July, traders are still trying to determine how much fiscal stimulus may come with potential successors, and to what degree any change could slow the next interest rate hike from the Bank of Japan.<\/p>\n
\u201cWith the LDP lacking a clear majority, investors will be cautious until a successor is confirmed, keeping volatility elevated across yen, bonds and equities,\u201d said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. \u201cNear-term, that argues for a softer yen, higher JGB term-premium, and two-way equities until the successor profile is clear.\u201d<\/p>\n
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Any further spike in JGB yields would be of concern to global markets, which have been on guard for more spillover from Japan into debt trading in Europe and the US. Long-end yields have been rising on renewed fiscal concerns across major economies.<\/p>\n
\u201cWhile it remains unclear who will become the next prime minister, it\u2019s difficult to envision anyone with a fiscal discipline stance better than or even equivalent to his,\u201d said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management in Tokyo. \u201cThe weak performance of ultra-long-term bonds, driven by fiscal concerns, is likely to persist or even intensify.\u201d<\/p>\n
The yen, which ended last week around 147.43 to the dollar, is likely to slide toward the 149.10\/20 level, said Tony Sycamore, an analyst at IG in Sydney. It traded at 148.45 as of 9:07 a.m. in Tokyo. The Nikkei-225 stock gauge rose 1.2% while the broader Topix index advanced 0.7%.<\/p>\n
Lire la suite <\/p>\n
Nick Twidale of ATFX Global Markets sees a chance that a BOJ rate hike comes off the table this year because of the political backdrop. The yen will be \u201cwhippy and horrible to trade,\u201d said Twidale. \u201cRates traders will also be facing heightened risk.\u201d<\/p>\n
Swaps markets suggest almost no prospect of a move by the BOJ at its next policy meeting later this month. They don\u2019t price in a full rate hike until next April, and show a chance of just under 50% for an increase by the December meeting of this year.<\/p>\n
Takuya Kanda, head of research at Gaitame.com Research Institute in Tokyo, had already warned on Friday that yen was in danger of falling all the way back to 150 on the nation\u2019s political backdrop.<\/p>\n
Views were mixed on Japanese shares, which would normally be expected to benefit from any more fiscal stimulus and a weaker yen.<\/p>\n
Equities uncertainty<\/p>\n
\u201cIn the Japanese equity market, uncertainty over the political outlook is expected to ease somewhat, leading to a temporary rise,\u201d said Jumpei Tanaka, head of investment strategy at Pictet Asset Management Japan. Then attention is likely to shift to who will become the next prime minister, said Tanaka.<\/p>\n
Japanese stocks may fall at the open on Monday, partly 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\u2019s resignation had been somewhat anticipated but not fully priced in.<\/p>\n
Potential candidates to replace Ishiba within the ruling party include Sanae Takaichi, a former internal affairs minister who favors stimulus measures and would likely prefer the Bank of Japan to take a more cautious view on interest rate hikes.<\/p>\n
Takaichi, Koizumi<\/p>\n
Agriculture Minister Shinjiro Koizumi, the son of a former prime minister, will also likely step into the fray. Other names include Takayuki Kobayashi, a former economic security minister, Yoshimasa Hayashi, the current chief cabinet secretary, as well as Finance Minister Katsunobu Kato.<\/p>\n
\u201cOur main scenario is Takaichi\u201d replacing Ishiba, and she is widely perceived as being dovish on both monetary and fiscal policy, said Ken Matsumoto, a macro strategist at Credit Agricole, who sees market pricing leaning in that direction.<\/p>\n
\u201cKoizumi is kind of neutral, so if he wins, it could swing back. Hayashi is more a fiscal hawk, so there\u2019s more flattening implication, if he wins,\u201d said Matsumoto.<\/p>\n
–With assistance from Matthew Burgess, Momoka Yokoyama, Hiroko Komiya, Ruth Carson, Kana Nishizawa and Naoto Hosoda.<\/p>\n
(Updates with stocks opening in Tokyo.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n
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