Abe Shooting Raises Policy Doubts From Analysts as Yen Gains

(Bloomberg) — The shooting of former Japanese Prime Minister Shinzo Abe is spurring market debate over a potential loss of support for the Bank of Japan’s super-easy monetary policy after an initial rush to haven assets Friday.

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The yen gained alongside Treasuries, with the currency rising as much as 0.5% against the dollar as details filtered through about the shocking attack at a political event in the western city of Nara during campaigning for Sunday’s national election.

Abe is known as a key supporter of BOJ Governor Haruhiko Kuroda’s policy of maintaining rock-bottom interest rates to support economic growth, recently describing the central bank as a subsidiary of the government.

Some strategists suggested the yen could extend gains — and stocks may decline — should the attack hasten a rethink of policy at the central bank. Economists largely argued that any impact would be temporary.

Stocks in Tokyo pared earlier gains when they reopened after the lunchtime break, but remained higher.

Abe picked Kuroda for the post of central bank chief back in 2013 when he launched his “Abenomics” platform to revive Japan’s flagging economy through unprecedented monetary easing, flexible fiscal spending and regulatory reforms. Those policies have largely stayed in place even after he stepped down in summer 2020 amid health concerns.

The BOJ’s outlier stance compared with other central banks racing to raise rates in the battle against inflation has contributed to the sharp slide in the yen to a 24-year low against the dollar.

Here are a selection of comments from market participants:

Pillar of Monetary Easing

“Abe had a strong image under Abenomics and had backed up Governor Kuroda,” said Tetsuo Seshimo, portfolio manager at Saison Asset Management Co. “Abe’s image of a ‘spiritual pillar of monetary easing’ may also have contributed to this widespread unrest.”

“However, Abe is currently not the prime minister and this should not directly affect the economic and monetary policies,” Seshimo added. “This shocking incident may have a short-term impact and not necessarily have a major effect on the markets in the long run.”

Long-Term Impact

“This may have an impact in the medium to long-term, and the markets will see a considerable appreciation of the yen and a decline in stock prices,” said Tomoichiro Kubota, senior market analyst at Matsui Securities. “Abe had been supporting Bank of Japan Governor Kuroda; the Bank’s policy could change as they would lose its backing.”

“After all, the LDP has been strongly promoting the reflationary policies of Abenomics even after Prime Minister Kishida took over,” Kubota said. “If the political activity of the main person who has been putting in the most effort is down it will affect the policy at the moment”

Change for Japan

“Since Abe is probably more well known overseas than Kishida, reaction in currency markets maybe be bigger when London trading starts,” said Mari Iwashita, chief market economist at Daiwa Securities. “He has led Abenomics so there may be perception Japan will change.”

“There may be sympathetic support for the ruling Liberal Democratic Party at Sunday’s election,” Iwashita added. “Given the lack of details, JGB market players are likely to take a wait-and-see stance.”

Pulling Strings

“Abe was well known outside Japan and foreign investors have seen him positively,” said Masahiro Yamaguchi, senior market analyst at SMBC Trust Bank. “It could be negative for markets if the government’s policy, including its stance on monetary easing, is affected as it was evident that he wa

s pulling the strings behind the scenes in many ways.”

“If it becomes possible for Kishida to carry out policies he wanted to, such as financial tax and regulations on share buy-back, that would be negative for markets.”

Credit Uncertainty

Japanese corporate bonds will likely face rising uncertainty over interest rates, according to Hidetoshi Ohashi, chief credit strategist at Mizuho Securities Co.

“Markets were thinking that the BOJ would not be able to raise interest rates while Abe’s influence was strong, and from now on, there may be speculation that the BOJ may be more flexible on policy,” Ohashi said. “If this incident accelerates uncertainty over interest rate risks, we may have fewer corporate bond sales volume along with widening spreads.”

Political Risk Premium

“The yen is showing a small safe haven bid on news former PM Abe’s shooting; political risk now has an additional premium ahead of the weekend elections,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney.

Path Unclear

“Whether yen appreciates further remains unclear. Abe isn’t the current premier and is a former premier so that may be taken into consideration,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “The yen is otherwise seen in a range ahead of nonfarm payrolls.”

Rethink Unlikely

“It’s very unlikely this will open the door for the BOJ to raise rates or change its easing course to be on the same page as the Fed and the ECB,” said Shinichiro Kobayashi from Mitsubishi UFJ Research & Consulting. “Kishida has already established his own economic agenda and has supported the BOJ at least so far. Abe wasn’t the reason the BOJ has stuck with keeping rates very low.”

Limited Impact

“It’s extremely shocking, but from a broad economic policy perspective I don’t think it’ll have major impact,” said Harumi Taguchi, economist at S&P Global Market Intelligence. “The election was already proceeding in a positive direction for the LDP, and Kishida’s policies aren’t too far removed from the Abe administration’s.”

Follow a live blog on the incident here.

(Updates throughout with comments and context.)