(Reuters) - Japanese Prime Minister Shigeru Ishiba said on Sunday he had decided to resign, ushering in a potentially lengthy period of policy paralysis at a shaky moment for the world's fourth-largest economy.
Ishiba, 68, instructed his Liberal Democratic Party - which has governed Japan for almost all of the post-war era - to hold an emergency leadership race, he told a press conference, adding he would continue his duties until his successor was elected.
Here are comments from market analysts.
CHRISTOPHER
WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:
"In the near term, political uncertainties in Japan may temporarily hinder the (Bank of Japan) from normalising policy, and this can undermine the yen. But yen weakness due to politics should reverse when uncertainty fades.
"Moreover, the Fed cutting rates in due course should also help to bring the dollar/yen lower amid Fed-BoJ policy divergence."
BEN BENNETT, HEAD OF INVESTMENT STRATEGY FOR ASIA, L&G ASSET MANAGEMENT, HONG KONG:
"Ishiba's resignation is another source of uncertainty for Japan at a time when bond and currency markets are already quite volatile. All eyes will be on how these markets trade next week, particularly the long end of the government bond curve."
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON:
"I don't think we can say that the resignation is a complete surprise as it's been mooted for some time, but the timing of the announcement is certainly unexpected. As for the market reaction, this obviously introduces significant downside risks for the (yen) and for long-end (Japanese government bonds) when trade gets underway...
"That selling pressure is likely to come first from the market now needing to price a greater degree of political risk, not only in terms of the LDP leadership contest but also the potential for a general election to be held if the new leader seeks a mandate of their own.
"There's also the fiscal angle to consider, with candidates for the leadership all likely to propose looser fiscal stances than Ishiba, hence further pressuring the long end of the curve, where demand for JGBs had already been waning quite significantly.
"For the BOJ, all this political uncertainty is likely to be a further delay to the tightening cycle. Policymakers had already been taking an incredibly cautious approach to rate hikes, an approach which they're now even more likely to maintain as political uncertainty ramps up."
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE:
"Ishiba's resignation was preceded by resignations of other senior members of his party, so it's not wholly unexpected in a way.
"In terms of impact on JGBs and the yen, market participants appear more concerned about BOJ falling behind the curve, so are likely to focus on the coming two policy meetings in September and October to set the tone for JGBs and the yen. In my mind, the fiscal uncertainty is a secondary concern."
KATSUTOSHI INADOME, SENIOR STRATEGIST, SUMITOMO MITSUI TRUST ASSET MANAGEMENT, TOKYO:
"Yields on super-long bond yields will likely rise from Ishiba's resignation. He has strict fiscal discipline. There has been an upward pressure on super-long bond yields due to uncertainties about fiscal conditions, and the pressure will increase."
TAKAMASA IKEDA, SENIOR PORTFOLIO MANAGER, GCI ASSET MANAGEMENT, TOKYO:
"The market has already priced in his resignation, so the question is who is going to be the next.
"If Sanae Takaichi is going to be the successor, that's positive for the stock market as she wants to boost government spending."
SAKTIANDI SUPAAT, REGIONAL HEAD OF FX RESEARCH AND STRATEGY, GLOBAL MARKETS, MAYBANK, SINGAPORE:
"Ishiba's resignation may trigger a knee-jerk safe-haven bid for the yen and some JGB volatility, but sustained direction in dollar/yen will hinge more on Fed–BoJ policy divergence than domestic politics.
"If Ishiba's resignation escalates into broader LDP instability, markets could price in greater political risk premia, amplifying safe-haven flows into the yen and flattening pressure on JGB yields."
(Reporting by Rae Wee in Singapore and Junko Fujita in Tokyo; Compiled by Sumeet Chatterjee; Editing by William Mallard)
