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The yen has been little changed with USD/JPY trading back above the 106.00-level as the sharp strengthening of the yen following PM Abe’s resignation has proven short-lived while Suga reaffirms his position as favoured continuity candidate, economists at MUFG Bank report.

Key quotes

“USD/JPY has quickly risen back into the middle of the narrow trading range between 105.00 and 107.00 that it has been in place since late July. The yen has settled back down as market participants have become more comfortable that Abenomics policies are unlikely to change under new leadership.”

“Chief Cabinet Secretary Yoshihide Suga is the favourite to be elected as the new Prime Minister. He reaffirmed his position as the continuity candidate over the weekend. He told the Nikkei that he ‘highly appreciates’ the BoJ’s policy and wants ‘to inherit their current framework’. He also told the Mainichi newspaper that lowering the consumption tax is not an option. He has vowed to defeat the coronavirus crisis, protect jobs and to break down silos between different ministries and agencies to achieve reform. All of which are a continuation of Abe’s policies.”

“If Suga becomes the next PM after the LDP leadership election on 14 September, he has stated that the Lower House should not be dissolved for an election until the coronavirus infections subside. The current term of the Lower House is set to expire next October. The direction of the LDP leadership race points towards a more limited impact on the yen.”

“If market participants continue to lose confidence in Abenomics’ ability to lift inflation in Japan, then the yen should continue to gradually strengthen as it has done in recent years after USD/JPY peaked at 125.86 back in June 2015.”


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