The recent nomination of Shigeru Ishiba as Japan's incoming Prime Minister has influenced USD/JPY gains. Following his narrow victory in the leadership contest of the ruling Liberal Democratic Party, the yen saw a notable increase. At 05:00 ET (09:00 GMT), USD/JPY traded 0.1% higher at ¥143.81. This comes after the pair fell to ¥142.09 last Friday.
Ishiba, a former defense minister, is known for his critical stance on past monetary stimulus. Initially, markets anticipated a win for hardline nationalist Sanae Takaichi, who opposes further interest rate hikes. However, Ishiba has adjusted his hawkish tone recently. Analysts at UBS noted that Ishiba stated, “monetary policy must remain accommodative,” during interviews with local media over the weekend.
Additionally, Ishiba's comments reflect the dovish stance of Bank of Japan (BoJ) Governor Ueda. At the September policy meeting, Ueda indicated that the BoJ would avoid further rate hikes amid market instability. He also mentioned that the strength of the yen has reduced inflation's upside risk. Therefore, analysts believe these developments support a gradual appreciation of the yen rather than a rapid increase.
As we look ahead, more clarity will emerge regarding the policy inclinations of Ishiba's administration. The formation of the new Cabinet members will provide insight into future monetary policies. According to UBS, their quarter-end forecasts for USD/JPY are ¥147, ¥143, ¥140, and ¥138 through Q3 2025. They also express a preference to sell USD/JPY on rallies toward the ¥145-¥147 range. This strategy aims to position traders for a long-term decline.
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