On August 14th, Japanese Prime Minister Fumio Kishida announced that he will no longer run for the position of president of the Liberal Democratic Party. This means that after the new president of the party is elected, Fumio Kishida will resign as prime minister. In this regard, market strategists point out that Fumio Kishida's decision not to seek re-election as prime minister may pave the way for a new leader who will work to normalize the policies of the Bank of Japan.

After the news came out, the market fluctuated. After rising 1.3%, the Nikkei 225 Index turned into a decline of 0.4%; the exchange rate between the US dollar and the yen remained stable at 1 US dollar to 146.89 yen; the yield on 10-year Japanese government bonds fell by 1.5 basis points to 0.83%.

It is reported that in the Liberal Democratic Party presidential election to be held in September this year, several candidates, including former Defense Minister Shigeru Ishiba, Digital Transformation Minister Taro Kono, Party heavyweight Toshimitsu Motegi, and Economic Safety Minister Sanae Takaichi, are the most hopeful candidates for the new chairman.

The following are market analysts' views on Fumio Kishida's withdrawal:

Regarding the yen and the Bank of Japan, Yujiro Goto, head of foreign exchange strategy at Nomura Securities, said: "If Fumio Kishida does not participate in the election, people may think that Toshimitsu Motegi or Taro Kono is more likely to be elected. People may be buying yen because they both talked about the need for the Bank of Japan to raise interest rates and correct the yen's weakness before the Bank of Japan's policy meeting in July." However, whether they can truly win is another matter, because recent opinion polls show that Taro Kono's support rate is falling, while Toshimitsu Motegi's support rate is still low." He added: "Sanae Takaichi is the only person who may clearly support a more accommodative policy, which may push down the yen again."

It is reported that Taro Kono called on the Bank of Japan to raise interest rates on July 17 to boost the yen exchange rate and lower energy and food costs. He emphasized the problems caused by the sharp depreciation of the yen, including the inflationary impact on domestic prices, and said that although the yen depreciation helps boost exports, its benefits to Japan are currently limited, as many Japanese companies have production facilities overseas.

Toshimitsu Motegi said on July 22 that the Bank of Japan should make its commitment to normalizing its monetary policy more clear, including steadily raising interest rates. To him, the excessive depreciation of the yen is clearly unfavorable to the Japanese economy.

Yuya Fuue, a trader at Rheos Capital Works Inc., said:"Some people speculate that the next Japanese government may support the normalization of the Bank of Japan's policy, because except for Sanae Takaichi, Shigeru Ishiba, Toshimitsu Motegi, and Taro Kono, who may compete for the president of the Liberal Democratic Party, seem to have a positive attitude towards normalizing the policy." However, many investors have been focusing on responding to market turbulence and have not paid too much attention to the competition within the Liberal Democratic Party leadership. I don't think today's trading is based on a strong belief."

Eiji Dohke, chief bond strategist at SBI Securities Co., said: "The Bank of Japan will be able to implement its strategy of exiting the stimulus measures more easily. Fumio Kishida is the most outspoken opponent of the Bank of Japan raising interest rates. Many of the following candidates are inclined to normalizing. However, it has become more difficult for the Bank of Japan to raise interest rates before the end of the year."

Regarding the Japanese stock market, Tomo Kinoshita, global market strategist at Invesco Japan, said: "Because the public's support for Fumio Kishida's government has always been at a low level, people may expect that a change in the top leadership will enhance market confidence and increase the ability to implement policies." "If Japan's pace of becoming an asset management center slows, this will have a negative impact on the stock market, because Fumio Kishida has been highly praised in the financial sector for this initiative."

Shoki Omori, chief strategist at Nomura Securities, said:"Market participants will not like this kind of uncertain situation, especially those who invest in risky assets such as stocks." "The yen will depend on external factors, especially US economic data and the Federal Reserve."Japanese government bonds will still be a market determined by supply and demand. My preliminary opinion is that the stock market will be most affected."

Charu Chanana, head of foreign exchange strategy at Shinsei Bank, said:"Although Fumio Kishida's withdrawal may bring some uncertainty, his low popularity means that the stock market may avoid major negative reactions."

Shinichi Ichikawa, senior researcher at Pictet Asset Management, said:"It is difficult to say who will succeed Fumio Kishida. But no matter who becomes the next prime minister, it is almost certain that the parliament will be dissolved and a general election will be held in October to November. This will make it more difficult for the Bank of Japan to take action, which may begin to affect the financial market."

Andrew Jackson, Head of Japan Stock Strategy at Ortus Advisors Pte, said:"Fumio Kishida's withdrawal paved the way for Taro Kono's inauguration. Given Taro Kono's tenure as Defense Minister during the Shinzo Abe government, this may be another bullish news for defense-related stocks." "Although much has changed since then and the prospect of defense has also become more relaxed, the market may still see it as a bullish news for companies such as Mitsubishi Heavy Industries and Kawasaki Heavy Industries."

Regarding the bond market, Tomo Kinoshita said that Fumio Kishida has been promoting aggressive fiscal policies, including increasing defense spending, and the new leader may not expand fiscal policies as before, which may have a positive impact on the fiscal soundness of the bond market.

Editor/ping