(Reuters) -Japanese Prime Minister Shigeru Ishiba said on Sunday he had decided to resign, ushering in a potentially lengthy period of policy paralysis at a shaky moment for the world’s fourth-largest economy.
Ishiba, 68, instructed his Liberal Democratic Party – which has governed Japan for almost all of the post-war era – to hold an emergency leadership race, adding he would continue his duties until a successor was elected.
Here are comments from market analysts.
MARCHEL ALEXANDROVICH, ECONOMIST, SALTMARSH ECONOMICS, LONDON:
“The focus for the markets will be on what happens to bond yields. But it’s exactly what we are seeing in other parts of the world – uncertainty over fiscal policy and high levels of government debt are a toxic combination. As we continue to see in France, of course.”
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON:
“I don’t think we can say that the resignation is a complete surprise as it’s been mooted for some time, but the timing of the announcement is certainly unexpected. As for the market reaction, this obviously introduces significant downside risks for the (yen) and for long-end (Japanese government bonds) when trade gets underway…
“That selling pressure is likely to come first from the market now needing to price a greater degree of political risk, not only in terms of the LDP leadership contest but also the potential for a general election to be held if the new leader seeks a mandate of their own.
“There’s also the fiscal angle to consider, with candidates for the leadership all likely to propose looser fiscal stances than Ishiba, hence further pressuring the long end of the curve, where demand for JGBs had already been waning quite significantly.
“For the (Bank of Japan), all this political uncertainty is likely to be a further delay to the tightening cycle. Policymakers had already been taking an incredibly cautious approach to rate hikes, an approach which they’re now even more likely to maintain as political uncertainty ramps up.”
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE:
“Ishiba’s resignation was preceded by resignations of other senior members of his party, so it’s not wholly unexpected in a way.
“In terms of impact on JGBs and the yen, market participants appear more concerned about BOJ falling behind the curve, so are likely to focus on the coming two policy meetings in September and October to set the tone for JGBs and the yen. In my mind, the fiscal uncertainty is a secondary concern.”
