JPY: Election impacts on economy and bonds – ING

ING analysts Min Joo Kang, Chris Turner, and Padhraic Garvey provide insights into the upcoming Japanese election and its implications for the economy, bonds, and the Yen. PM Sanae Takaichi is expected to secure a significant victory, which could lead to higher JGB yields and potential USD/JPY strength. The report discusses the balance between spending and fiscal sustainability in Japan's economic landscape.

Takaichi's election and economic implications

"Takaichi needs to find a balance between more spending and fiscal sustainability. Structural changes in the economy should send JGB yields higher. We believe it is a path towards a normal economy."

"If the LDP secures a majority in the lower house, Takaichi could speed up tax cut talks. She will argue that she has the public mandate. But a consensus still needs to be reached by the national council."

"We expect that the economy will return to a normal state after experiencing many years of deflation. While fiscal sustainability may contribute to higher yields, we think economic normalisation plays a stronger role in driving yields upward."

"A positive election result for the LDP that would pump more air into the 'Takaichi trade' is a USD/JPY positive. USD/JPY could even approach 160/162 levels again on the back of this."

"In all, we forecast USD/JPY to bounce around in a 155-160 range through the first half of the year and then 50bp of Fed rate cuts to drag it closer to 150 by year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)