Yujiro Goto, Research Analyst at Nomura, points out that in Japan, a candidate (Hideyo Hanazumi) supported by the ruling coalition (LDP/Komeito) won the Niigata governor election over the weekend.
Key Quotes
“The Abe cabinet’s approval rating has been stabilising, and Mr. Hanazumi’s victory at the Niigata governor election is a relief for Prime Minister Abe ahead of the LDP leadership election.”
‘The risk of PM Abe resigning has been a major tail risk for yen-crosses, and there is still just a low probability tail risk, in our view.”
“While domestic politics stabilises, foreign affairs will be important for Japanese politics and JPY in the near future, as the US-North Korea summit is imminent.”
“The relationship between the index and yen-crosses has been changing, but the latest estimate sows a lower North Korea Stress index will be positive for USD, CAD, and AUD against JPY. These currency pairs could benefit if the summit suggests positive developments in the North Korean situation.”
“After tomorrow’s summit meeting, the G3 central banks’ meetings are key risk events this week.”
“While not our main scenario, if the ECB upgrades its 2020 inflation forecast, EUR appreciation against JPY can accelerate further. Monetary policy divergence will likely widen further this week, while for EUR/JPY, the Sintra conference next week will be also important.”
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