Japan’s Elections & Risks: Lower House Dissolved Ahead of October 22nd National Vote

Make Japan great again?

2 40

Political Events Continue to Pose Risks

In what has become a strong theme in forex markets, political events are once again overshadowing basic economic drivers. Following the recent UK and German elections, attention has now shifted to Japan where the traditionally tame and uneventful political climate has been disrupted.

Abe Calls Snap Election for October 22nd

Last week Japanese Prime Minister Shinzo Abe officially called for a snap election on October 22nd, well ahead of the end of the Lower House’s four-year term in December 2018. The move is being viewed as an attempt by Abe to take advantage of his perceived popularity at this stage, as well as his opponents unpreparedness, and so extend his term in office.

Abe’s Popularity Ratings Recover After Summer Plunge

Following a series of scandals, Abe’s popularity ratings had plunged below 30%. However, after a cabinet reshuffle over the summer, Abe’s image appeared to recover, and his ratings moved back up into the 50% range. Clearly Abe feels that while his popularity is rising again, now is the time to put the electorate on the spot and consolidate his support base.

The Party of Hope Emerges

However, the political climate was once again disrupted following the calling of the election as the governor of Tokyo, Yuriko Koike, announced she was forming a new party “The Party of Hope” to run in the elections. Koike is a former news anchor who has styled her political image as a conservative populist willing to take on the traditional forces in Japanese politics with her “tolerant, conservative reform party”.

Abe’s decision to call a snap election can also be seen as an attempt to force the Party of Hope to the polls before they have time to properly organise and arrange their candidates and to limit the potential for their support to grow. If Abe waited until the December deadline, there is a chance that Koike could have overtaken him in the polls.

Abe Dissolves Lower House

Abe made another swift move this week by dissolving the Lower House as they reconvened. Opinion polls showed that the new party of his former ally is gaining ground on Abe and so this move is seen as a way of protecting himself against Koike challenging him with questions in a public debate.

Most Expect Abe To Retain Power

Despite the emergence of this new party, most expect Abe’s Liberal-Democratic Party to retain power which would increase the likelihood of Abe retaining his seat as a leader at the next leadership election in September 2018. However, as we have seen with political events over the last year, there has been a high level of surprise and an unexpected outcome here cannot be ruled out.

Abe’s popularity ratings might have recovered somewhat but no doubt the Party of Hope will point to the recent scandals in their election campaign and with an image built on challenging the old and leading for the new, which has worked well across the globe over the last year, it could be that the Party of Hope’s early poling success will translate into a bigger success later this month.

Abe Victory Linked to Continued BOJ Easing

If the Liberal-Democrats win the election and Abe retains his role as PM and should maintain the status quo for the BOJ and the JPY. When Abe announced the snap election last week, Abe praised the positive impact of his Three Arrows Policy. Importantly, Abe retaining power increases the likelihood of BOJ governor Kuroda continuing his role.

The BOJ recently reaffirmed their commitment to maintaining easing via their QQE with yield curve control program which has been effective in keeping JGB yields suppressed despite an environment of rising global yields. Abe retaining power should therefore ultimately be a negative force for JPY as it would maintain the status quo both politically and with the BOJ.

If Abe is defeated, the likelihood of Kuroda maintaining his role as BOJ governor would decrease and JPY would be vulnerable to an upside risk as investor uncertainty around the potential for BOJ tightening would increase.

Technical Perspective

After a false break of the prior 2017 low, USDJPY has since turned higher and traded back up to challenge the bearish channel resistance from last year’s highs. A break higher here will bring the 114 level into focus, which has been strong resistance over the year.



or practice on DEMO ACCOUNT

Trading CFDs Involves high risk of loss

Leave A Reply

Your email address will not be published.