Sanae Takaichi passed a key early test as bond markets delivered a reassuring message about the pro-stimulus conservative’s surprise near-certain elevation to Japan’s premiership. Demand in Japan’s 30-year sovereign bond auction came in stronger than the 12-month average, enough to ease frayed nerves after earlier concerns that Takaichi’s policies will require more government spending and fan inflation. Her win also damped expectations that the Bank of Japan may hike interest rates this month, with one of her closest economic advisers suggesting that a better timing would be December.
The more dovish rate outlook appears set to revive a once-popular currency trade betting against the yen. The Japanese currency has dropped against all of its major peers on bets the delayed hikes could tempt traders to borrow the low-yielding yen and buy currencies such as the Brazilian real or Australian dollar that offer higher returns.
Meanwhile, Japan’s ruling Liberal Democratic Party has attempted to quell concerns over its long-standing coalition with junior party Komeito. Local media have reported some within Komeito are considering pushing to leave the quarter-century alliance with the LDP, citing worries over Takaichi’s right-wing nature. After losing its majority in both houses of parliament, the ruling party has been reaching out to various opposition parties to try and shore up its grip on power. A senior official for the LDP said they hope to further deepen their relationship of mutual trust.
AloJapan.com