Such is the state of Japanese politics that it’s big news these days to be able to report that Japan’s prime minister is still Japan’s prime minister.
Naoto Kan on Tuesday afternoon fended off the most serious challenge to his hitherto short and intense leadership of the ruling DPJ from the controversial Ichiro Ozawa.
Kan beat Ozawa by a total 721 to 491 points in a pary membership election. However, as the FT reports, in a sign of continuing pressure on his leadership, Kan only narrowly beat Ozawa by 206 votes to 200 in the most important part of the vote, among the party’s Diet members, or parliamentarians.
The yen rose further in response, reaching Y83.09 to the dollar on Tuesday from Y83.60 earlier, driven by the view that Kan’s endless pledges to act to curb yen strength will continue to prove hollow.
Bloomberg reports on Tuesday afternoon, Tokyo time:
The yen rose to a 15-year high versus the dollar as Prime Minister Naoto Kan beat Ichiro Ozawa in a vote for control of the ruling party, while Asian stocks fluctuated after three days of gains. New Zealand’s dollar fell for the first time in five days as spending slowed.
Japan’s currency climbed to 83.34 per dollar as of 3:45 p.m. in Tokyo from 83.71 in New York yesterday after earlier rising to 83.25, the strongest level since May 1995….
The victory by Kan over Ozawa in the race to head Japan’s ruling Democratic Party of Japan will lower the likelihood the government will sell yen to weaken the currency….
And for a quick, sensible analysis, this from Steve Englander, Citi’s head of G10 FX strategy, and his team (our emphasis throughout):
The DPJ vote on Tuesday (likely to emerge overnight in NY) for the party leadership effectively determines who will be prime minister…
If PM Kan turns out to be the winner as expected, we are likely to see some immediate downside pressure on USDJPY, as a full probability of victory is not yet priced in. If Ozawa were to surprise with a victory, the upside USDJPY pressure would be very rapid, given his comments.
But even if PM Kan remains in power it is very possible that the view on JPY intervention will shift. Recent comments from Kan and Noda have turned in a more hawkish direction, saying Japanese government will take decisive action including FX intervention when FX market gets too volatile….
… So far we haven’t expected MoF [Ministry of Finance] intervention until it USDJPY approaches the historical low near 80. But even in the case PM Kan wins… we cannot rule out the possibility that MoF’s stance will get more hawkish if USDJPY approaches the recent low near 83.
Related links:
Kan and Ozawa battle for DPJ support – FT
David Pilling: The perils of Japan’s Warhol politics – FT
Peter Tasker: The shadow shogun is the man for Japan – FT
Japan, China and intervention two-step - FT Alphaville
Ozawa might force yen intervention if elected – WSJ