Yen Drops as Traders See Takaichi’s Chances Rising in LDP Vote
(Bloomberg) -- The yen declined against the dollar and Japanese bond futures rose as traders speculated the chances are increasing that economic security minister Sanae Takaichi will be Japan’s next leader.
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The currency weakened as much as 0.8% to 145.93 and sovereign bonds rallied as investors await the results of the ruling Liberal Democratic Party’s vote in the afternoon. Although the Bank of Japan is independent from the government, speculation of political pressure on monetary policy is leading traders to bet on the election results.
The focus is on Takaichi, who argued earlier this week that “it’s stupid to raise rates now” given the merits of a weak yen. If elected she could become Japan’s first female prime minister. The Sankei newspaper reported that former prime minister Taro Aso intends to have his faction vote for Takaichi.
“The depreciation of the yen is a move in preparation for a Takaichi victory in the LDP leader election” said Akira Moroga, chief market strategist at Aozora Bank.
Read: Japan’s New Prime Minister to Be Decided by LDP Leadership Poll
The yen was inching closer to the 146 level at 2:00 p.m. in Tokyo before results were due to announced. The yield on two-year Japanese government notes dropped as much as 3 basis points to 0.31% before retracing some of the move, while benchmark 10-year bond yields fell as low as 0.805%.
Options traders have priced in a 35% chance that Takaichi will win the election, slightly lower than Shigeru Ishiba, according to Nomura Securities Co.
--With assistance from Yasutaka Tamura.
(Updates yen price)
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