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Strong Yen against Hamstrung Yoshihide Suga

  • September 19, 2020
    Strong Yen against Hamstrung Yoshihide Suga

    Liberal Democratic Party (LDP) will elect a new leader to succeed the
    resigned Shinzo Abe as the next Prime Minister on September 14. This
    election, therefore, will be determined by the LDP factions rather than
    the country's public opinion. While Chief Cabinet Secretary Yoshihide
    Suga has taken a lead in the LDP's leadership race, he stressed to carry
    “Abenomics” forward with no novelty in his political platform.To get
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    fact, the mess in the country's economy cannot be cleared up whatever
    Suga's politics are. Not only is Japan's economy the worst among the
    major industrial nations, but the government's debt-to-GDP ratio is the
    world's largest, which is even more than Greece and Italy that are known
    to be in debt crisis.

    I hold a gloomy view that the Japanese equities may be too high to keep
    the upside as Suga is not capable to guide the country out of its
    slump. The Nikkei 225 index has regained 7,142 points (43.60%) to 23,500
    from a March low of 16,358 and is approaching to the triple top that
    was formed earlier, with the largest resistance lying in the 24,448.5 of
    September 2018, which is also the high level of October 1991. This
    index is expected to retreat after seeing little chance of breaking
    through the triple top.

    A decline in Japanese stocks will trigger
    the unwinding of carry trade in the currency, driving a rise in risk
    aversion and strengthening the yen. At this stage, the weak U.S. dollar
    leaves limited space for the yen to drop sharply, with the biggest upper
    resistance against the yen between 107.04 and 108.16. On the contrary,
    if the Nikkei does fail to hit the top and fall steeply in the future,
    USD/JPY will have a chance to challenge the 104.19 low of July 31, where
    a breach below will see the yen showing its power. In addition to the
    election of the LDP's leader, investors should also pay attention to the
    central bank's interest rate meeting on September 17, noticing whether
    the monetary policy will change after the new Prime Minister takes