Investing.com – Last weekend’s Japanese general election caused a political uproar with the loss of the ruling bloc’s parliamentary majority, and Citigroup is looking at the potential impact on the yen.
Prime Minister Shigeru Ishiba’s ruling Liberal Democratic Party and its long-time partner Komeito failed to retain a majority in this weekend’s Lower House elections.
The LDP has ruled Japan for almost all of its post-war history.
An extraordinary session of the Diet will be convened within 30 days of the election to vote for a new prime minister, Citi said in an Oct. 28 note, “and we expect the ruling coalition will seek to form a broader coalition with both countries . the Japan Innovation Party (JIP) or the People’s Democratic Party (DPP). The Constitutional Democratic Party of Japan (CDPJ) is also likely to negotiate with other opposition parties to form a coalition that includes both parties.
At 09:20 ET (13:20 GMT), down 0.3% was trading at ¥152.70, having previously risen to a high of ¥153.88, the weakest since July, as investors thought the election outcome measures would prevent further interest rate increases.
“We think there could be a temporary upside of around ¥155/$ in the coming weeks, depending on the outcome of the US elections,” Citi said.
“However, amid recent changes in Japan’s political environment, we believe that measures to mitigate JPY weakness will become increasingly important, so we now see a greater likelihood that the BoJ will raise its policy rate by the December MPM or January. [monetary policy meetings].
“If the USD/JPY crosses ¥155/$, there would again be the possibility of a MoF invention buying the JPY.”
