October 23, 2024

Japanese Election Results May Influence Next BoJ Interest Rate Decision

Japan's snap election on Oct 27 may impact fiscal policy, the yen, and global markets.

Summary

  • Japanese snap election scheduled for Saturday, October 27, marking a critical juncture in the nation's political landscape
  • Governing Liberal Democratic Party (LDP) seeks to maintain power, but faces increasing uncertainty amidst recent polls and public sentiment
  • Bank of Japan's monetary policy outlook may face complications if the LDP fails to secure a clear majority, potentially impacting future interest rate decisions
  • Japanese yen could experience downward pressure if the newly elected government prioritizes expansionary fiscal policies over monetary tightening
  • Election outcome holds significant implications for Japan's economic trajectory and global financial markets

 

 

Japan's Election on October 27

Japan will hold a general election on October 27, just before the US presidential election and the November 7 Fed meeting. This election is crucial for Japan and the Bank of Japan, which recently raised interest rates for the first time in nearly two decades and may continue to tighten monetary policy.


Reason for Snap Election

Former Prime Minister Fumio Kishida resigned in August plagued by scandal, quickly replaced by Shigeru Ishiba. Ishiba won the Liberal Democratic Party (LDP) leadership contest and called for a snap election on October 27, a year earlier than scheduled, despite the LDP's strong majority in the lower house.


New Prime Minister's Background

Ishiba became LDP leader after several attempts, narrowly losing to former PM Abe in 2012. He focuses on defence and foreign affairs, advocating for an Asian NATO and stronger military to counter China.

Ishiba favours stimulus over fiscal consolidation, despite Japan's high debt-to-GDP ratio. He's announced rural support packages and discussed changingJapan's flat tax structure. While he seems more reform-minded than his predecessor, his policies will depend on election results and economic conditions.

 

Ishiba's Stance on the Bank of Japan

Initially, Ishiba's victory in the LDP leadership race sparked market optimism, with the yen strengthening and stocks declining due to his perceived hawkish stance compared to his LDP rival, Sanae Takaichi. However, Ishiba and the new economic minister have since moderated their position during the pre-election period.

Recent statements such as "additional rate hikes are not currently appropriate" and "caution is needed when raising rates as exiting deflation takes time" indicate a shift in the new LDP leadership's approach. While the BoJ's autonomy remains intact, historical evidence suggests that Japan's economic progress relies on coordinated fiscal and monetary policies.

Market expectations currently indicate a 70% likelihood of a10-basis point rate increase on December 19. This decision hinges on theOctober 27 election results and external factors including the U.S.presidential election, Federal Reserve decisions, and Middle East developments.One potential bright spot for BoJ hawks is the report that Rengo, Japan's largest labour union, aims for a wage increase exceeding 5% in next year's spring negotiations.


Recent Polls Indicate Uncertainty in LDP's Majority

Initial polls following the snap election announcement suggested the LDP would comfortably secure the 233 seats required for a majority, potentially forming a government with their coalition partner, the Komeito party. However, recent surveys have introduced uncertainty, indicating a possibility that the LDP may underperform on October 27, potentially falling short of an outright majority.



Key Election Scenarios

1. LDP Secures Comfortable Victory and Forms Government with Komeito – 60% Probability

Despite a significant portion of undecided voters and ongoing LDP controversies, the fragmented opposition suggests that the Japanese electorate may likely grant the LDP another term.

A decisive victory would enable Ishiba to implement his proposed fiscal expansion strategy, potentially at the expense of monetary policy tightening. While the Bank of Japan may remain open to further rate increases, the lack of policy coordination could impact current economic dynamics. This scenario may lead to yen depreciation, with the USD/JPY potentially surpassing the 152 threshold.


2. LDP and Allies Achieve Narrow Majority – 30% Probability

Recent polls suggest increasing likelihood for this outcome.In this scenario, newly appointed Prime Minister Ishiba may need to pursue greater coordination with the Bank of Japan. Having finally secured the premiership, Ishiba will likely prioritise maintaining his position.

Ishiba is expected to proceed with his fiscal expansion plans, albeit with funding sources that may raise concerns, as tax increases could negatively impact consumption. Nevertheless, the possibility of aDecember Bank of Japan rate hike remains, potentially leading to a partial reversal of the yen's recent underperformance.


3. No Majority Achieved, Coalition Negotiations or New Election – 10%Probability

This scenario presents significant challenges for the Bank of Japan, as political uncertainty may necessitate a postponement of rate decisions pending resolution. Negotiations for a broader coalition would likely ensue, potentially resulting in an agreement, given the rarity of minority governments in Japan.

Under these circumstances, the yen may face continued pressure, with the USD/JPY potentially extending its upward trajectory. This trend could accelerate if upcoming U.S. economic data remains robust.

 

News & Events

Learn, earn, and improve with Raze Markets Educational Resources.
Dollar Weakens Amid Upcoming US Vote and Rate Cut Expectations
Dollar declines amid US election uncertainty and rate cut bets, impacting global financial markets.
Learn more
News & Insights
How Will US Elections Impact the Markets?
US election could impact markets with Harris's policies on spending and Trump’s tax cuts.
Learn more
News & Insights
US Dollar Rises as Expectations for Fed Interest Rate Increase
US dollar rises as Fed rate hike expectations decrease, impacting global currency markets
Learn more
News & Insights
European Central Bank Rate Cut Boosts Markets, Lowers Euro Value
ECB’s dovish rate cut sparks optimism in financial markets while pushing the euro lower
Learn more
News & Insights
Balancing Profitability and Sustainability in Forex Trading: Our Co-Founder Speaks at Abu Dhabi Expo
Risk, reward, profitability, trading strategies, macroeconomic and geopolitical analysis in forex.
Learn more
News & Insights
What’s in Store for Gold in Q4?
Gold outperforms in Q3, but with U.S. election, Fed policy, and risks ahead, will Q4 see a bull run?
Learn more
News & Insights
New Zealand Monetary Policy Review: October 2024
The Reserve Bank of New Zealand cuts its main rate by 0.50% to 4.75%, aligning with expectations.
Learn more
News & Insights
Raze Markets Unveils a New Era in Trading: Rebrand, Expanded Product Line, and Empowered Access for All Traders
Raze Markets is proud to announce the launch of a comprehensive rebrand.
Learn more

Heading

This is some text inside of a div block.
This is some text inside of a div block.
Learn more

Heading

This is some text inside of a div block.
This is some text inside of a div block.
Learn more

News & Events

Learn, earn, and improve with Raze Markets Educational Resources.
Dollar Weakens Amid Upcoming US Vote and Rate Cut Expectations
Dollar declines amid US election uncertainty and rate cut bets, impacting global financial markets.
Learn more
News & Insights
How Will US Elections Impact the Markets?
US election could impact markets with Harris's policies on spending and Trump’s tax cuts.
Learn more
News & Insights
US Dollar Rises as Expectations for Fed Interest Rate Increase
US dollar rises as Fed rate hike expectations decrease, impacting global currency markets
Learn more
News & Insights
European Central Bank Rate Cut Boosts Markets, Lowers Euro Value
ECB’s dovish rate cut sparks optimism in financial markets while pushing the euro lower
Learn more
News & Insights
Balancing Profitability and Sustainability in Forex Trading: Our Co-Founder Speaks at Abu Dhabi Expo
Risk, reward, profitability, trading strategies, macroeconomic and geopolitical analysis in forex.
Learn more
News & Insights
What’s in Store for Gold in Q4?
Gold outperforms in Q3, but with U.S. election, Fed policy, and risks ahead, will Q4 see a bull run?
Learn more
News & Insights
New Zealand Monetary Policy Review: October 2024
The Reserve Bank of New Zealand cuts its main rate by 0.50% to 4.75%, aligning with expectations.
Learn more
News & Insights
Raze Markets Unveils a New Era in Trading: Rebrand, Expanded Product Line, and Empowered Access for All Traders
Raze Markets is proud to announce the launch of a comprehensive rebrand.
Learn more

Forex Expo Dubai 2024

Dubai | 2024
Raze Markets is pleased to announce its presence at the Forex Expo Dubai 2024.
Learn more

iFX Expo International

Limassol, Cyprus | 2024
Check out the highlights from an incredible two days of new partnerships and new possibilities in the Mediterranean.
Learn more

Set up and fund your account instantly, trade within minutes

1

Register

Select an account type and submit your application.
2

Fund

Choose from a variety of methods to fund your account.
3

Trade

Access 1,000+ instruments across all asset classes.

Our trading accounts

Ready to begin your trading journey? Our accounts are custom-built to suit your needs, so choose your account, unlock individual access to institutional-grade trading and rise with Raze.
Trust our reviews

What our clients say

By Robert Frazier
A Personal touch.
Good to see there are some brokers who take every client seriously and care about ensuring a high level of satisfaction. This company does that with grace. I only hope for more educational content. Is that possible?
By Sam Thompson
The customer support at Raze Markets.
The customer support at Raze Markets is truly exceptional, anytime I've had an issue or just needed advice, they've been quick to respond and super helpful. The level of service is rare, and it's made my trading experience much more enjoyable and stress-free.
By Faiza Meunier
Over all good experience
I found confusing at the start but now I’m comfortable. I'm happy with the service and the platform, thanks to you guys - Merci, au revoir
By Waqas Ahmad
What You Want In Forex Broker? Great…
What You Want In Forex Broker? Great conditions trading, lots deposit and with draw options, not a delay so far, reasons for a 5 star broker.
By Larry Hasson
When you trade with an experienced…
When you trade with an experienced broker, you feel it. And with Raze Markerts this is well felt. Every aspect of trading and service feels smooth and reliable. Sure, no broker is perfect, but I still think they deserve the highest rating.
By James Parker
Ever since I switched to Raze Markets
Ever since I switched to Raze Markets, my trading experience has improved. Trading energy products like oil and natural gas is more straightforward and profitable. Their platform makes complex trades feel simple and manageable.
By Robert Frazier
A Personal touch.
Good to see there are some brokers who take every client seriously and care about ensuring a high level of satisfaction. This company does that with grace. I only hope for more educational content. Is that possible?
By Sam Thompson
The customer support at Raze Markets.
The customer support at Raze Markets is truly exceptional, anytime I've had an issue or just needed advice, they've been quick to respond and super helpful. The level of service is rare, and it's made my trading experience much more enjoyable and stress-free.
By Faiza Meunier
Over all good experience
I found confusing at the start but now I’m comfortable. I'm happy with the service and the platform, thanks to you guys - Merci, au revoir
By Waqas Ahmad
What You Want In Forex Broker? Great…
What You Want In Forex Broker? Great conditions trading, lots deposit and with draw options, not a delay so far, reasons for a 5 star broker.
By Larry Hasson
When you trade with an experienced…
When you trade with an experienced broker, you feel it. And with Raze Markerts this is well felt. Every aspect of trading and service feels smooth and reliable. Sure, no broker is perfect, but I still think they deserve the highest rating.
By James Parker
Ever since I switched to Raze Markets
Ever since I switched to Raze Markets, my trading experience has improved. Trading energy products like oil and natural gas is more straightforward and profitable. Their platform makes complex trades feel simple and manageable.
By Robert Frazier
A Personal touch.
Good to see there are some brokers who take every client seriously and care about ensuring a high level of satisfaction. This company does that with grace. I only hope for more educational content. Is that possible?
By Sam Thompson
The customer support at Raze Markets.
The customer support at Raze Markets is truly exceptional, anytime I've had an issue or just needed advice, they've been quick to respond and super helpful. The level of service is rare, and it's made my trading experience much more enjoyable and stress-free.
By Faiza Meunier
Over all good experience
I found confusing at the start but now I’m comfortable. I'm happy with the service and the platform, thanks to you guys - Merci, au revoir
By Waqas Ahmad
What You Want In Forex Broker? Great…
What You Want In Forex Broker? Great conditions trading, lots deposit and with draw options, not a delay so far, reasons for a 5 star broker.
By Larry Hasson
When you trade with an experienced…
When you trade with an experienced broker, you feel it. And with Raze Markerts this is well felt. Every aspect of trading and service feels smooth and reliable. Sure, no broker is perfect, but I still think they deserve the highest rating.
By James Parker
Ever since I switched to Raze Markets
Ever since I switched to Raze Markets, my trading experience has improved. Trading energy products like oil and natural gas is more straightforward and profitable. Their platform makes complex trades feel simple and manageable.
Our trusted payment providers

Trade with confidence, anytime, anywhere.

Instant Deposit
Fast Withdrawal
0% Commission