How much is a Japanese prime minister worth to investors and markets?
Not that much, it would seem, judging from the sluggish investor reaction to Wednesday’s news that Yukio Hatoyama had become Japan’s fourth prime minister to resign in four years.
As we reported earlier on Wednesday:
Yukio Hatoyama on Wednesday said he would quite as Japan’s prime minister just eight months after his Democratic party swept into power, reports the FT.
Ichiro Ozawa, the DPJ’s influential secretary-general, would also step down, Hatoyama said. Naoto Kan, finance minister, Seiji Maehara, infrastructure minister and Katsuya Okada, foreign minister, are seen as possible replacements.
The moves follow clashes between Hatoyama and his party’s Social Democratic partner over the relocation of a US military base. The yen fell on the news, reaching Y91.37 to the dollar on Wednesday from Y90.94 on Tuesday.
Hatoyama had been widely criticised for his handling of a controversial US marine base relocation plan, which led to the weekend walk-out by his party’s junior coalition partner, the Social Democrats. But another factor in his party’s declining popularity has been a fund-raising scandal involving Ozawa, broadly seen as Japan’s most powerful politician, added the FT.
After countless prime ministerial comings and goings from the Kantei, the PM’s official residence in central Tokyo, over the decades, investors may well have seen Wednesday’s events as just another reminder of that most Japanese of all concepts, “mono no aware”, or the ephemerality of all things.
As the FT noted (our emphasis):
Mr Hatoyama’s announcement did not cause any strong moves in financial markets. The yen weakened only slightly on the news, falling from Y91.04 against the US dollar to Y91.66 by 11.30am in Tokyo.
Japanese stocks edged higher on the weakening yen. The Nikkei 225 index reversed a 1.1 per cent decline at the opening of trading, and closed for lunch up 0.4 per cent at 9,747.54.
Japanese government bond futures slipped slightly after the announcement from 140.51 to 140.39. However, they recovered to 140.47 at the end of morning trading, down just 0.03 per cent.
One Japanese government bond salesperson said there was “no real fallout as normally the JGB market only cares about actual fiscal policy moves and not the personalities”.
In the view of JPMorgan’s currency strategist Tohru Sasaki, the whole thing was “not that surprising considering the recent mess in Japanese politics”.
“Needless to say, Hatoyama’s resignation should not have much impact on the market” for both the yen and Japanese stocks, Sasaki said in a Wednesday client note:
In this country, politics do not have significant impact on the economy, therefore, they do not have meaningful impact on the market.
“Fortunately”, he adds, “there exist abundant examples to gauge the possible impact of a Japanese PM’s resignation on the market”. Here is Sasaki’s supporting evidence (chart courtesy of JPMorgan Japan):
As Sasaki notes (our emphasis):
Shinzo Abe announced his intention to resign on Sept 12 2007 (his official resignation date was Sept 26). USD/JPY continued to range trade over the next few weeks and eventually fell more than 8% by the end of November.
Yasuo Fukuda announced his intention to resign on Sept1 2008 (official resignation date: Sept 24). USD/JPY continued to range trade for a few days but eventually started declining until the end of the year (and fell more than 20%).
Basically, those falls in USD/JPY were irrelevant to the PM’s resignation. They just tell us that factors other than PM’s resignation are far more important for the USD/JPY market. Currently, European turmoil should be more important to the JPY market than the political turmoil in Japan.
Ultimately, says Sasaki, “I think the news and JPY weakness just gives us a better level at which to buy JPY”.
Related links:
Steve Clemons: Obama takes down the (wrong) PM – HuffingtonPost
Hatoyama faces pressure to quit – FT
Hatoyama written off as lame duck premier – FT
Japanese prime ministerial resignations – Google timeline
Hatoyama’s pigeon impression – NewzJapan