(Bloomberg) — The yen declined against the dollar and Japanese bond futures rose as traders speculated the chances are increasing that economic security minister Sanae Takaichi will be Japan’s next leader.
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The currency fell as much as 0.5% to 145.06 and sovereign bonds rallied as investors await the results of the ruling Liberal Democratic Party’s vote in the afternoon. Although the Bank of Japan is independent from the government, speculation of political pressure on monetary policy is leading traders to bet on the election results.
The focus is on Takaichi, who argued earlier this week that “it’s stupid to raise rates now” given the merits of a weak yen. If elected she could become Japan’s first female prime minister. The Sankei newspaper reported that former prime minister Taro Aso intends to have his faction vote for Takaichi.
“The depreciation of the yen is a move in preparation for a Takaichi victory in the LDP leader election” said Akira Moroga, chief market strategist at Aozora Bank.
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The yen trimmed its decline to 145.06 as of 11:30 a.m. in Tokyo. The yield on two-year Japanese government notes dropped as much as 3 basis points to 0.31%, while benchmark 10-year bond yields fell as low as 0.805%.
Options traders have priced in a 35% chance that Takaichi will win the election, slightly lower than Shigeru Ishiba, according to Nomura Securities Co.
–With assistance from Yasutaka Tamura.
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