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Amy Yuan Zhuang, Chief Asia Analyst at Nordea Markets, suggests that Japanese Premier Abe’s political standing is weakened by scandals and a possible defeat at the LDP leadership election in September could cost him the prime ministership and end Abenomics. If Abe steps down, USD/JPY could be headed back below 100, she further adds.

Key Quotes

“The upcoming leadership election in the ruling Liberal Democratic Party (LDP)  scheduled to be held no later than September this year  is crucial for Shinzo Abe’s prime ministership and Abenomics and by extension the JPY.”

Abe will most likely step down as prime minister if he loses the LDP election, even though the next general election is not due until October 2021.”

“A series of recent scandals have not only plunged his approval rating to an all-time low  but made his own party turn on him.”

“The headwinds may be strong but all is not lost.  Two factors may help Abe weather the storm.  First of all, there are  no good alternatives to replace him. So far only Seiko Noda, the interior minister, has announced her candidacy. She has too little political clout to pose a serious threat. Other possible contenders do not lead remarkably in polls either. Secondly,  Abe has time before September to recover popularity  through policy achievements, such as a relief from US tariffs on Japanese steel or participation in denuclearising North Korea. The modest rebound of Abe’s approval rating recently suggests that he should not be written off yet.”

“If Abe wins the leadership election, he secures another three years as president of the LDP and will become the longest-serving prime minister in Japan’s history.”

“If he loses the election, it will spell the end of his political career.  The fate of Abenomics becomes uncertain, as the possible candidates have all expressed scepticism towards Abe’s signature economic programme. Bank of Japan Governor Haruhiko Kuroda’s recent reappointment for another 5-year term until 2023 ensures  continuity in monetary policy.”