June 2, 2010 / 1:13 AM / 9 years ago

Instant Analysis - Japan PM Hatoyama quits ahead of poll

TOKYO (Reuters) - Japanese Prime Minister Yukio Hatoyama said on Wednesday he and his powerful party No. 2 would resign after a slide in the polls threatened their party’s chances in an election expected next month, pushing the yen to a two-week low against the dollar.

Hatoyama becomes the fourth Japanese leader to leave office in a year or less, with some investors worried that political instability would make the country’s weak economy more dependent on the Bank of Japan’s easy monetary policy.

KEY POINTS

— The Democrats, who swept to power in a landslide election victory last year, need to win the upper house poll expected on July 11 to avoid policy paralysis.

— A party official said a new leader will be chosen on Friday. One lawmaker also said the new cabinet is likely to be chosen next Monday.

— Pundits say Finance Minister Naoto Kan, who doubles as deputy prime minister and is a former DPJ leader, is front-runner to succeed Hatoyama.

MARKET REACTION:

— The yen extended its fall against the dollar to 91.77 yen from around 91.10 yen before the first media report on the resignation.

— Tokyo’s Nikkei average was up 0.4 percent, paring earlier losses, helped by the yen’s retreat against the dollar.

— For JGB updates, click, for prices click

COMMENTARY

TAKAHIRA OGAWA, JAPAN SOVEREIGN ANALYST, STANDARD & POOR’S

“I don’t think there will be a significant change of expectations. Even if we didn’t see the resignation of the prime minister we have the election for the upper house in the next month and the result of that could change the formation and structure of the government as well as the lineup of the cabinet.

“We can’t judge anything on the basis of the announcement of the resignation of the prime minister or party leader. We need to see over a longer time horizon, whether the next government will be able to make the structural reforms necessary for Japan to reduce the size of its fiscal deficit and prevent the further increase of the heavy debt burden.”

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TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE

“It’s clear that the DPJ wants to get over the upcoming upper house election by changing its top figures. There’s already a rumour that Finance Minister Naoto Kan will take over from Hatoyama, and if he does so there is a high chance the DPJ will stay in power for the next three years. That is to happen, of course, unless the DPJ suffers a landslide defeat, which seems quite unlikely.

“If Kan takes over the job, his austerity position on fiscal policy will be reflected in the next cabinet’s policy. That has both good and bad sides in terms of the impact on the economy. Consumer sentiment could be undermined as they are going to step up discussions over the tax rate even though the actual hike will be years away.

“On the other hand, Kan’s pro-MOF position to go ahead with fiscal reform would curb concerns about the debt problem here.”

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SUSUMU KATO, CHIEF ECONOMIST JAPAN, CREDIT AGRICOLE CIB

“It will be positive for the Democrats that Ozawa is resigning together with Hatoyama before the election. This will likely help the party avoid a crushing defeat as they may appeal to voters that they have resolved problems with their own lawmakers.

“Kan is likely to succeed Hatoyama, so there won’t be much change in terms of economic policy, which has effectively been in his hands as finance and economics minister. If deputy finance minister Yoshihiko Noda or National Strategy Minister Yoshito Sengoku take over from Kan as finance minister, the government could avoid discontinuity in fiscal policy.

“Still, I’m afraid the change in leadership will delay the government’s plan to map out a mid-term fiscal framework by the end of current parliamentary session this month, which gives a negative impression to bond markets.”

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YOSHIKIYO SHIMAMINE, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO

“The market impact of Hatoyama’s resignation will be limited until the party decides the next prime minister. We will have to see what kind of policies the next cabinet will take and whether the Democrats can revitalise themselves with the new policies.

“If Naoto Kan, who has advocated raising the consumption tax, becomes prime minister, it would be good for the bond market and bad for the stock market.

“Although Ozawa is resigning I think he will remain powerful and have a certain influence in the party.”

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AYAKO SERA, MARKET STRATEGIST, SUMITOMO TRUST & BANKING

“If Japan’s prime minister keeps changing quickly as we saw with the LDP, the former ruling party, worries about a delay in a growth strategy and fiscal discipline could raise the risk of a triple sell-off ...

“The market is driven by external factors rather than those of Japan at the moment. As for the dollar/yen, 92 yen is seen the immediate resistance and if the dollar is to rise, up to 95 yen would be the most in the next few months.”

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