Shooting of former Japanese PM raises policy doubts from analysts as yen gains

The yen gained with Treasuries, with the currency rising as much as 0.5% as details filtered through about the shocking attack at a political event in the western city of Nara.
Shinzo Abe, former Japanese Prime Minister. Image: Kiyoshi Ota/Bloomberg

The shooting of former Japanese Prime Minister Shinzo Abe is spurring market debate over a potential loss of support for Bank of Japan’s super easy monetary policy after an initial rush to haven assets Friday.

The yen gained with Treasuries, with the currency rising as much as 0.5% as details filtered through about the shocking attack at a political event in the western city of Nara. Abe is seen by many as a key supporter of BOJ Governor Haruhiko Kuroda’s policy, which has weighed on the yen all year.

Some strategists suggested the currency could extend gains — and stocks may decline — should the news hasten a rethink of policy at the central bank. Abe is best known for his plans to revive Japan’s flagging economy through unprecedented monetary easing and regulatory reforms. Others argued that any impact would be temporary. Japan holds upper house elections on Sunday.

Stocks in Tokyo pared earlier gains when they reopened after the lunchtime break, but remained higher.

Here are a selection of comments from market participants:

Pillar of monetary easing

“Abe had a strong image under Abenomics and had backed up Governor Kuroda,” said Tetsuo Seshimo, portfolio manager at Saison Asset Management Co. “Abe’s image of a ‘spiritual pillar of monetary easing’ may also have contributed to this widespread unrest.”

“However, Abe is currently not the prime minister and this should not directly affect the economic and monetary policies,” Seshimo added. “This shocking incident may have a short-term impact and not necessarily have a major effect on the markets in the long run.”

Long-term impact

“This may have an impact in the medium to long-term, and the markets will see a considerable appreciation of the yen and a decline in stock prices,” said Tomoichiro Kubota, senior market analyst at Matsui Securities. “Abe had been supporting Bank of Japan Governor Kuroda; the Bank’s policy could change as they would lose its backing.”

“After all, the LDP has been strongly promoting the reflationary policies of Abenomics even after Prime Minister Kishida took over,” Kubota said. “If the political activity of the main person who has been putting in the most effort is down it will affect the policy at the moment”

Change for Japan

“Since Abe is probably more well known overseas than Kishida, reaction in currency markets maybe be bigger when London trading starts,” said Mari Iwashita, chief market economist at Daiwa Securities. “He has led Abenomics so there may be perception Japan will change.”

“There may be sympathetic support for the ruling Liberal Democratic Party at Sunday’s election,” Iwashita added. “Given the lack of details, JGB market players are likely to take a wait-and-see stance.”

Pulling strings

“Abe was well known outside Japan and foreign investors have seen him positively,” said Masahiro Yamaguchi, senior market analyst at SMBC Trust Bank. “It could be negative for markets if the government’s policy, including its stance on monetary easing, is affected as it was evident that he was pulling the strings behind the scenes in many ways.”

“If it becomes possible for Kishida to carry out policies he wanted to, such as financial tax and regulations on share buy-back, that would be negative for markets.”

Credit uncertainty

Japanese corporate bonds will likely face rising uncertainty over interest rates, according to Hidetoshi Ohashi, chief credit strategist at Mizuho Securities Co.

“Markets were thinking that the BOJ would not be able to raise interest rates while Abe’s influence was strong, and from now on, there may be speculation that the BOJ may be more flexible on policy,” Ohashi said. “If this incident accelerates uncertainty over interest rate risks, we may have fewer corporate bond sales volume along with widening spreads.”

Political risk premium

“The yen is showing a small safe haven bid on news former PM Abe’s shooting; political risk now has an additional premium ahead of the weekend elections,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney.

Path unclear

“Whether yen appreciates further remains unclear. Abe isn’t the current premier and is a former premier so that may be taken into consideration,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “The yen is otherwise seen in a range ahead of nonfarm payrolls.”

Temporary reaction

“Since he is not a current prime minister, reaction probably is likely to be temporary,” said Fukuhiro Ezawa, head of financial markets Japan, Standard Chartered Bank.

© 2022 Bloomberg

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