Your note says the Takaichi trade is here to stay. Should we look past the yen strengthening this morning?
Lizzy Burden
Carol Kong
Dollar-yen initially rose on the LDP win report. The reaction was surprising as markets were pricing in more fiscal policy and slower BOJ rate hikes. Dollar-yen reversed some gains in following hours, probably driven by intervention concerns after renewed warnings from MOF officials.
How do you interpret those comments from the currency official? Does it signal an intervention isn't far away?
Lizzy Burden
Carol Kong
The MOF has been warning about the currency for a while. Under Takaichi, the risk of direct intervention has definitely risen. Judging by warnings, we are definitely getting closer to an actual intervention.
If Takaichi is back to welcoming yen weakness, could we see it testing 160 per dollar?
Lizzy Burden
Carol Kong
Her earlier comments sparked speculation she may welcome yen weakness, but she pared back her comments. Ultimately, Takaichi will have to accept a weak yen if she pursues loose fiscal policy and pressures the BOJ to slow rate hikes.
Do you buy the idea that because it was a decisive win, Takaichi might not push her fiscal policy through as aggressively?
Lizzy Burden
Carol Kong
I do think Takaichi will continue to press ahead with her reflationary policies because she would interpret the landslide win as public endorsement. She would definitely deliver on those promises of loose fiscal policy.
Where does it leave the Bank of Japan? When do you see the next hike?
Lizzy Burden
Carol Kong
Our base case continues to be one more 25 basis point hike by the Bank of Japan in June. That's fully priced by markets. Markets have been shifting pricing towards an earlier hike in April, probably because of the weakening in the Japanese yen.