Summary:
Despite PM Shigeru Ishiba's coalition losing its majority in last month's election, the yen steadied after his re-election.
The yen held steady on Tuesday following the news that Japanese lawmakers voted to keep Prime Minister Shigeru Ishiba as the country’s leader. This vote comes after Ishiba’s coalition lost its majority in the lower house in last month’s election, which added a layer of political uncertainty. Markets are closely watching how Ishiba's leadership will impact economic policies, especially amid recent fluctuations in the yen and concerns around potential economic reforms.
Some Japanese officials are concerned that Trump may once again target Tokyo with trade policies that could significantly impact Japanese automakers, especially those with strong ties to the U.S. market. Many of these car manufacturers have established production plants in Mexico, exporting vehicles to the U.S. from there. Trump recently announced a proposed 200% tariff on all cars manufactured in Mexico, which could disrupt this supply chain.
In Japan, a slight majority of firms are considering a 3% wage increase for the next fiscal year, according to a Reuters survey. This rise is seen as a necessary step if the Bank of Japan (BOJ) intends to raise interest rates gradually. However, many companies are hesitant to support Prime Minister Shigeru Ishiba’s goal of increasing minimum wages by over 40% within five years. Added uncertainty around U.S.-Japan trade relations and potential economic challenges are further compounding concerns.
Meanwhile, Japan’s service-sector sentiment took a hit in October, with a rise in bankruptcy cases, casting doubt on the country's progress toward achieving its 2% inflation target through stronger domestic demand.
The greenback still traded above 200 SMA against the yen, suggesting the rally have more to go. It needs to clear the hurdle at 160 to retest the all-time peak hit in 1986.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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