Prime Minister Suga put off running for the LDP presidential election: Experts see this

By Reuters Staff

5 Min Read

[Tokyo 3rd Reuters] - Prime Minister Yoshihide Suga announced on the 3rd that he would not run for the presidential election of the Liberal Democratic Party. Although he has advocated the promotion of digitalization and environmental measures, the spread of the new coronavirus infection has not stopped, and as the party's presidential replacement theory intensifies before the House of Representatives election, he will resign after one year from his appointment. became. Comments from market participants are as follows.

Increasing pressure to raise interest rates, fears of increased issuance of government bonds and high stock prices

The general election will be held in the future, but no matter who wins the LDP presidential election, it is likely that they will come up with large-scale economic measures in the short term, and it is likely that they will issue more government bonds at the beginning of the year, so supply and demand will fall. It is easy to notice when it gets worse. In addition, the trend of high stock prices will also make it easier for bonds to be sold a little.

It will depend on the results of the US employment statistics for August, which will be released this evening, but at the US Federal Open Market Committee (FOMC) in September, the US Federal Reserve Board (FRB) will decide whether to taper in November. I think I will issue a notice that I will decide. There is a possibility that the European Central Bank (ECB) board meeting on the 9th will discuss the slowdown of government bond purchases.

It's a time when interest rates tend to rise globally, but on the other hand, there are concerns about an economic slowdown in China and other countries, so the range of interest rate rises may be limited.

The Bank of Japan is expected to head for the exit indifferently, but it is difficult to strengthen tightening as the impact of the spread of corona infection continues. For this reason, we do not anticipate any impact on the Bank of Japan.

● To get rid of the feeling of blockage, the 25-day average line will support the stock price in the future

It was difficult to say that the policies related to the corona disaster that were promoted under the Yoshihide Suga administration had a visible effect, so the market was in a stalemate mood. From the expectation that a move will be made, the sense of blockage is dispelled.

However, there have not been any major changes in the fundamentals, including overseas economic indicators. At the moment, the reasons for the high stock price include a sense of security that the risk of changes in the framework of policy management has receded, and vague expectations for policies in the lead-up to the general election. It is likely that the market will factor in specific economic policies ascertained.

Regarding the movement of the Nikkei Stock Average, it became a breakout. Therefore, the moving averages of the 25th, 75th, and 200th, which have been conscious of upside resistance so far, are expected to support the downside in the future, but after the recent rise of 1,500 yen was recorded. Therefore, there is a possibility that adjustments will be made next week.

●Initial reaction is risk-on selling, future interest in next president's policies

The news of Prime Minister Kan's resignation was transmitted to the yen bond market during the market's lunch break, and the stock price futures first surged in response. Japanese government bond futures started trading in the afternoon with a sharp increase in the decline. Liberal Democratic Party) I don't think they are reacting with a concrete image of who the president is going to be or what the policy is going to be.

The BOJ has a lot of influence over the yen bond market, and market players are very interested in how the BOJ's monetary policy, which the government and the BOJ have worked together since Abenomics, will turn out. ing. Looking back at past LDP presidential elections, not everyone, including Mr. Ishiba and Mr. Kishida, thought the current monetary policy of the BOJ was desirable. If it becomes clear who the next governor will be and what he thinks about the BOJ's monetary policy, we expect the bond market to react again at that stage.

Mr. Suga's non-running is unexpected, is Mr. Takaichi's probability increasing?

Over the past week, Japanese stocks have shown signs of peaking out in the number of new coronavirus infections in Japan, and have been solid due to expectations for economic policies following the national election. . With the number of infected people surging, mentioning economic measures could be seen as disrespect for human life. Until now, the government has been caught between calls for infection control measures and calls for economic measures. Maybe we're finally seeing some bright spots. However, Prime Minister Yoshihide Suga's announcement of not running for the LDP presidential election at this timing was an unexpected scenario. I realized once again that there is no point in making predictions about politics.

We believe that market participants want Fumio Kishida or Sanae Takaichi. Until yesterday, it was a one-on-one battle between Mr. Suga and Mr. Kishida. Mr. Takaichi's stance on economic policy is clear, and in addition to talks of even more powerful fiscal stimulus than Abenomics, he also mentions shelving the goal of achieving a surplus in the primary balance. Mr. Kishida is still the main scenario, but today's rising market may also include moves to expect Mr. Takaichi.

●The surprise reaction is also temporary, and there is no impact on the Bank of Japan's monetary policy

Since the approval rating has been sluggish since the beginning of the year due to the Kan administration's clumsiness in dealing with corona, it was assumed to some extent that he would not run for the LDP presidential election. But the timing of the revelation prompted a reaction from markets that weren't convinced he was going to step down.

It depends on whether the Liberal Democratic Party and Komeito can break the majority in the upcoming presidential election and the House of Representatives election. If Mr. Kishida, who is seen as a leading candidate, becomes governor, he is expected to come up with an economic stimulus package worth tens of trillions of yen. Even if the budget is enacted and an increase in the issuance of government bonds is made, it will probably be early next year. We do not see any impact on the Bank of Japan's monetary policy.

There is still time until the presidential election on the 29th. Markets will continue to pay close attention to the August US employment report, which will be released tonight, and the US Federal Open Market (FOMC) results from 21-22.

● Limited impact on monetary policy, foreign exchange market reacts weakly

It was reported that Prime Minister Yoshihide Suga decided not to run for the LDP presidential election and decided to resign, but the impact on the exchange market has been limited so far. There is also uncertainty about who will become prime minister in the future.

In the stock market, the Nikkei Stock Average has a big impact, but there is a temperature difference in the reaction to political stories depending on the market. Even if Prime Minister Kan resigns and the prime minister changes, it is unlikely that there will be a major change in Japan's monetary policy directly, and the reaction in the currency market seems to be weak.

In addition, the news of Prime Minister Suga's resignation came as a surprise, but the impact is not so great, as the interest of market players is heading towards the August employment statistics to be announced in the United States this evening.

For the foreseeable future, the dollar/yen exchange rate is expected to move between around 109 yen and around 111 yen, depending on the results of the US employment statistics. After the employment statistics, the FOMC (Federal Open Market Committee) is likely to become stronger again.

Refrain from taking unnecessary positions before the US employment statistics

The dollar/yen exchange rate dropped from 109.86 yen to 110.07 yen, depreciating by about 20 sen following reports of Prime Minister Kan's failure to run for the presidential election, but has now fallen back to around 110 yen and has stalled. there is

Today's foreign exchange market is waiting for the August US employment report, and if you ask 100 people involved in foreign exchange, 100 people will say that the employment report is more important than the Japanese political situation. As a result, the pair refrained from taking unnecessary positions, and the reaction of the dollar/yen pair was limited.

Overseas forces will not be moved by this report.

Because so far, it's just the result of a mess within the Liberal Democratic Party.

I think that the interest will shift to the election in the future, but it will be better for the LDP to set up a person other than Mr. Suga as the representative in the election.

There seems to be no problem with the continuity of corona countermeasures. Rather, it is hoped that the bureaucracy, which has been atrophied due to the politics of terror (personnel affairs), will become more open and things will progress.

In the first place, looking back on the past, Japanese politics had almost no medium- to long-term impact on the yen exchange rate. We expect the same pattern this time.

Close resemblance to ex-Prime Minister Noda when he mentions dissolution, to determine the policy of the new prime minister

Since Prime Minister Yoshihide Suga, whose approval rating was low, decided to resign, the ruling party suffered a devastating defeat in the general election in the stock market, resulting in a change of government and political instability even if it did not lead to it. I've read that it can be avoided. In the sense that it will not get any worse than this, it can be said that it is very similar to the situation in which former Prime Minister Yoshihiko Noda mentioned the dissolution at the end of the DPJ administration, and the stock price soared immediately after that.

However, as was the case at the time, there is no concrete policy in sight at the moment, so the market will be able to ascertain the new prime minister's policy through the LDP presidential election and the general election.

In addition, today's movement made it clear that the delay in Japanese stocks was not a delay in responding to the new coronavirus disaster such as vaccination, but a political risk. The change of prime minister will lead to a delayed correction, and the Nikkei Stock Average will not fall below 28,000 yen for the time being.

Mr. Kishida is a strong candidate for succession, but other candidates are also running

Prime Minister Kan seems to have become a "dead body" when he was unable to disband while his approval rating was declining. Even if things went as they were, the situation was such that it would not necessarily be possible to gather support in the presidential election.

As a candidate for the next president, there is no doubt that former Policy Research Council Chairman Kishida, who took risks and raised his hand, is a strong candidate. However, with Prime Minister Suga no longer running, there is a possibility that other candidates will emerge in the future. Former Secretary-General Ishiba (corrected) and Foreign Minister Motegi may also consider running.

There are two major issues that the future government will need.

The first is corona countermeasures. While Europe and the United States have shown resilience from large-scale infections, Japan has been able to suppress the infection to some extent, but the infection continued slowly and created a fifth wave.

The other thing the market expects is how to rebuild the Japanese economy, and how to raise productivity in the midst of a declining and aging population. Former Prime Minister Abe, at the beginning of his administration, focused on the three arrows, but it seems that the growth strategy did not go well, and it ended up being a crown snake.

Mr. Kishida is proposing an economic package worth tens of trillions of yen, but perhaps other candidates will come up with such proposals as well.

The problem is beyond that, we need to put out solid policies now to support the economy, but that doesn't mean we can continue to do so forever. How to find the exit will continue to be questioned.

● Concerns about political instability in the medium term

The reason why Prime Minister Yoshihide Suga decided to resign was that it would be difficult to win the LDP presidential election given the current situation, and that the LDP would split even if he won or lost. Is it because you made a decision?

Currently, only former policy chief Fumio Kishida has announced that he will run for office, but in addition to former secretary-general Shigeru Ishiba, Prime Minister Kan, who was negative about running for the current cabinet ministers, withdrew, and Taro Kono is regulated. Reform Minister and Foreign Minister Toshimitsu Motegi's movements are also worthy of attention.

In the financial market, we are expecting new policies that are not bound by the past, and in the short term, we are reacting with high stock prices, but in the medium to long term, there are concerns about political stability.

The Kan administration will close the curtain in about a year. Although it depends on the centripetal force of the new prime minister, long-term governments such as Yasuhiro Nakasone, Junichiro Koizumi and Shinzo Abe have been followed by short-lived governments, which is the lineage of Japanese politics. As important themes such as decarbonization, security, and digital technology are being discussed in the international community, there is concern that Japan will not lag behind. I hope that under the new prime minister, Japanese politics will regain its vitality.

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