Abe's party election to spur market speculations in Japan

Trade frictions with US may also pose yen appreciation.

Japan will have a steady second half of 2018 but some risk factors in the background may hit the market.

The market may likely to react when a strong candidate faces Prime Minister Shinzo Abe for party president elections. Abe’s replacement as head of the Liberal-Democratic Party (LDP) may spur speculations within the market, an analysis by JP Morgan revealed.

“Given PM Abe’s scandals related to the Moritomo Gakuen and Kake Gakuen, PM Abe may face challenges from inside his own party,” JP Morgan noted.

Meanwhile, trade frictions between US and Japan may also pose appreciation for the yen should the Trump administration makes remarks about the yen, and demands correction of the US trade imbalance.

“The Trump administration could drive up its domestic popularity ahead of the midterm elections (November 6) via a range of trade-related demands directed at its trade partners including Japan,” the investment firm explained.

Moreover, JP Morgan believes that a decline in real interest rate due to rising inflation may lead to yen depreciation which may make the Bank of Japan to take small actions. 

“We recommend strategies to hedge against the emergence of the risks,” JP Morgan said.