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shigeru ishiba was unexpectedly elected as the prime minister of japan. the japanese yen staged a major reversal, soaring sharply against the us dollar. japanese government bond futures fell, and the nikkei 225 index suffered heavy losses.

on the evening of the 27th, atback,nikkei 225 index futures once fell by more than 2,000 points during trading and triggered the circuit breaker mechanism.

on the afternoon of the same day, shigeru ishiba, the former secretary-general of the liberal democratic party of japan, won the majority of votes in the second round of the liberal democratic party presidential election. previously, the market had been digesting expectations of another candidate, sanae takaichi, who made remarks earlier this week that she hoped the bank of japan would maintain loose monetary policy.

as usual, the new liberal democratic party president shigeru ishiba will be nominated by the national assembly on october 1 and is expected to take over as prime minister. the term of current japanese prime minister fumio kishida as president of the liberal democratic party will end on september 30.

after rising this morning, the japanese yen is now stable at around 143 yen against the us dollar.

how will changes in japan's political situation affect the bank of japan's policies?

ishiba's election has affected the market's expectations for the bank of japan's future policies, especially whether the bank of japan's attitude towards monetary policy is sustainable.

earlier this week,in his speech, he reiterated the position of the bank of japan,that is, if the data supports it, the central bank will raise interest rates again, but it will not be in a hurry to do so.some analysts believe that his remarks indicate that the bank of japan is unlikely to take policy action at next month's meeting.

shoki omori, chief trading strategist at mizuho securities in tokyo, said:

“many yen shorts were hit, especially speculators and short-term funds.along withshigeru ishibaas the next prime minister, all expectations regarding risk appetite and reflation policy have evaporated. apparently many investors had expected the easing to last longer and may have reentered carry trades or shorted the yen, but now all shorts are being closed. in the future, the bank of japan will advance policies based on data. "

some analysts believe that ishiba's hawkish stance may boost the yen and predict that the bank of japan may raise interest rates in the future, especially in december. alex loo, macro strategist at td securities, said:

“yen bulls are encouraged by ishiba's past comments suggesting he is a currency hawk.today's results reinforce our belief thatthat is to say, the bank of japan will raise interest rates again in december this year, and the narrowing of the interest rate gap between the united states and japan can push the usd/jpy back to the 140 yen level.”

crédit agricole strategist valentin marinov said:

“ishiba's unexpected win could embolden yen bulls,because this may trigger expectations for further policy normalization by the bank of japan, possibly as early as october.

additionally, any possible move away from the fiscal activism of abenomics could have some important implications for the yen carry trade. in particular, any attempts at debt reduction and/or waves of corporate restructuring,in the long run, it may stimulate the flow of repatriated funds to the yen, thereby impacting the yen financing arbitrage trade.。”

homin lee, senior macro strategist at lombard odier singapore ltd., said:

“the new cabinet under shigeru ishiba will broadly support the bank of japan’s current gradual policy normalization plan, which should push the yen higher in the coming months. our base case forecast isthe bank of japan will raise interest rates by 25 basis points in december, and usd/jpy will fall further to 135 in the next 12 months.”

some analysts believe that the market has overreacted and that japan's economic fundamentals will not suddenly change in the short term. jpx ceo hiromi yamaji said:

"the market has overreacted to the liberal democratic party election results and does not believe that the stock market and economic fundamentals will suddenly change. it is expected that shigeru ishiba will continue to implement stock market policies such as the nisa tax-free investment plan."