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Heng Koon How, Head of Markets Strategy, and Alvin Liew, Senior Economist, at UOB Group, reviewed the recent events in the Japanese government.

Key Quotes

“Last Friday (28 Aug), Japan’s Prime Minister Shinzo Abe announced his resignation due to health-related issues. This marks the end of Japan’s longest serving Prime Minister and has fuelled concerns about succession plans for the third largest economy in the world.”

“The immediate focus will be on the candidate who will replace him as Liberal Democratic Party (LDP) president and Prime Minister next month. The current market expectations are for Chief Cabinet Secretary and loyal lieutenant to Abe, Suga Yoshihide (71 years old), to be the next Japanese leader.”

“Japan’s current ruling party, LDP, forms the government and its president traditionally assumes the top post of Prime Minister. The LDP has not decided when and how to choose its next president and is scheduled to hold a party general council meeting on Tuesday (1 September). Local media reports suggest that 15 September (Tuesday) is a possible date for the LDP to select its new president.”

“That said, elections are now more likely to be brought forward (maybe to the end of this year rather than in September next year). The LDP, along with its coalition partner, the Komeito party, is still expected to perform well enough to stay in power while the opposition parties remain fragmented. Thus, even with the new leadership, Japan’s political stability is expected to be maintained.”

“As for monetary policy, while the current Bank of Japan (BOJ) Governor Kuroda was appointed by Abe, it is not expected that Kuroda will leave his post because Abe is stepping down. The current government is still expected to support Kuroda in his role as the central bank head, whose term will end only in April 2023.”

“In terms of FX outlook, as long as there is no drastic change in monetary policy direction from the BOJ, we can continue to expect gradual JPY strength as a result of the broader weakness in the USD.”

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