The 67-year-old former Japanese Defense Minister Shigeru Ishiba defeated Sanae Takaichi in the runoff last Friday and was elected the 28th president of the Liberal Democratic Party of Japan. He is expected to be named the 102nd prime minister at the extraordinary parliament convened on October 1. As Shigeru Ishiba supports the efforts of the Bank of Japan to tighten monetary policy, the exchange rate of the US dollar against the yen fell from 146.5 to 142.15 last Friday, and the yen appreciated by nearly 3%. Will the arbitrage trade battle royale in early August repeat itself?
Shigeru Ishiba vows to lead Japan out of economic woes
Ordinary Japanese households have been feeling the pinch of a weak yen, a stagnant economy and food prices soaring at the fastest pace in nearly half a century in the wake of the coronavirus pandemic, the BBC reported.
Wages in Japan have barely budged in 30 years, according to the Organization for Economic Co-operation and Development (OECD). A 30-year recession coupled with high inflation is tightening pressure on Japanese households and prompting calls for government assistance. The weakening yen has made many imported goods more expensive due to inflation, leaving Japanese residents feeling the pain.
Ishiba pledged to "completely exit" Japan's high inflation and vowed to achieve "real wage growth." At his post-election press conference, he emphasized the need to revive consumption in the world's fourth-largest economy to ensure that Japan can fully escape long-term economic stagnation.
Shigeru Ishiba’s foreign policy becomes the focus
Ishiba is well versed in the machinations of party politics and security policy. He said Japan must strengthen security in light of recent incursions into Japanese territory by Russia and China and missile tests by North Korea.
Ishiba's approach to diplomacy with Japan's closest ally, the United States, will also be in focus as he has repeatedly called for a more balanced relationship with Washington. During the campaign, Ishiba called for the establishment of an Asian version of the NATO security bloc to deal with threats from China and North Korea. A spokesman for the White House National Security Council said Washington looks forward to "working with the next Japanese prime minister to further strengthen the U.S.-Japan alliance and advance their shared vision for a free and open Indo-Pacific." Asked about Ishiba's appointment, a Chinese Foreign Ministry spokesman said Beijing hoped Japan would have an "objective and correct" understanding of China.
According to the Central News Agency, Shigeru Ishiba is an old acquaintance of President Lai Ching-te. He interacts enthusiastically with the major political parties in Japan and is highly trusted by important cross-party members in Japan. It is expected that after Shigeru Ishiba comes to power, Taiwan-Japan relations will continue to develop closer.
As the yen rises, arbitrage unwinding starts again?
The Bank of Japan announced a 15 basis point interest rate hike on July 31. After the benchmark interest rate was raised to the highest level since 2008, carry trades were forced to unwind, global stock markets fell, and the yen also appreciated. However, Bank of Japan President Kazuo Ueda still firmly stated that if the Bank of Japan is convinced that economic and price development are in line with expectations, then the basic stance of adjusting the degree of monetary easing will not change.
(The Bank of Japan is hawkish and raises interest rates to 0.25%. Is the cheap yen officially over?)
As Shigeru Ishiba supported the Bank of Japan's efforts to tighten monetary policy, the dollar-yen exchange rate fell from 146.5 to 142.15 on Friday, and the yen appreciated by nearly 3%. If it falls below the previous low of 139.57, it may trigger a new round of arbitrage trades and be forced to liquidate positions.
This article "Shi Po" is shocking! Shigeru Ishiba will be the Prime Minister of Japan, will the yen arbitrage battle royale resume? First appeared in Chain News ABMedia.