Japanese stocks slump and yen rises after Shinzo Abe resignation – business live

Japan’s prime minister, Shinzo Abe, has confirmed that he will step down for health reasons.

His health started to decline around the middle of last month, and he does not want to make mistakes in important policy decisions, he said, according to Reuters.

He apologised for stepping down in the middle of the coronavirus pandemic, and said he would continue until someone else was appointed, but declined to comment on a successor.

On economic policy, Abe said the government has succeeded in boosting jobs, ending 20 years of deflation with the three arrows of Abenomics.

The famous “three arrows” of Abenomics were monetary easing, fiscal spending and structural reforms to try to add some dynamism to the Japanese economy – which become something of a byword for stagnation (although visitors to Japan might argue that stagnation doesn’t appear to be such a bad thing).

Two of those arrows could directly weaken the yen – and indeed that was a boost to Japanese exporters.

ING strategists wrote in a note to clients that “Abenomics” was one of the key factors in yen weakness in previous years. But, they said, what matters most for the yen is the Bank of Japan’s stance and that it is too early to say whether Abe’s resignation would materially impact the central bank.

A fair question in the comments from murphharrison: why has the yen gained ground after reports of Abe’s resignation?

Some analysts said political uncertainty could prompt some Japanese to bring money back home to avoid being caught out by volatility in currency markets.

Bank of Singapore currency analyst Moh Siong Sim told Reuters:

There’s some nervousness and concerns because he’s the longest serving Prime Minister, and with him gone there could be some uncertainty. Perhaps Abenomics is coming to a close. And perhaps we could see some repatriation and this is why the yen has strengthened somewhat.

Derek Halpenny, head of research, global markets EMEA at Japan’s MUFG Bank, said that Abe’s exit could allow deflationary pressures back in if it heralds a softening of so-called Abenomics, the “three arrows” strategy to push the Japanese economy out of stagnation and deflation.

Deflation makes the yen more valuable at a time when interest rates globally are not giving investors much return. The US central bank is signalling loose monetary policy for some time as well, weakening the US dollar.

Halpenny said:

There can be no denying that the timing of PM Abe’s departure is not particularly good. Covid has hit Japan hard like elsewhere, and we continue to see emerging signs of the return of deflation to Japan. […]

Deflation helps to lift real yields when nominal yields are at the lower bound and this has been a long-term supportive factor for the yen, and will be especially so now with the Fed trying to drive real yields lower through it monetary policy framework shift.

Shinzo Abe’s reported plan to resign has given currency markets a jolt on a usually quiet late-August Friday.

The US dollar index is down by 0.5%, after the Japanese yen (one of the biggest weights in the basket) jumped. The yen is up by 0.5% today, and has just strengthened to the 106 yen per US dollar mark.

Note that this chart’s y-axis is quoted in yen per US dollar, so what appears as a drop is actually an increase in the yen’s value. And it’s also worth noting that the increase today only takes the yen back to levels seen yesterday.

There are some quite punchy comments coming through from the UK’s transport minister, Grant Shapps, who has been talking up a campaign for people to return to work.

The government is planning on telling people they should return to workplaces where it is safe to do so in order to help the economy to recover. Whether businesses will actually choose to do so is another matter.

Speaking on LBC radio, Shapps said, via Reuters:

Our central message is pretty straightforward: we are saying to people it is now safe to return to work.

The FTSE 100 has given investors something to think about this morning: it opened up by 0.5% at 8am BST, but has dropped to a 0.3% decline in the 20 minutes since.

That means London’s blue-chip index is back below 6,000 points.

Elsewhere the biggest European markets all went through the same bumpy ride. The Euro Stoxx 600 is down by 0.1%, having opened up by 0.3%. Germany’s Dax index is flat, having opened up by 0.4%, and France’s Cac 40 is also flat, having gained 0.3% in the opening trades.

German consumer confidence fell back in August, denting economists’ hopes that the rebound from the depths of the coronavirus lockdowns would continue.

The latest indicator (labelled, confusingly, as September) by GfK fell to -1.8, down from -0.2 in the previous reading and lower than the 1.2 expected by economists.

GfK in its report said:

Expectations for a rapid recovery in the consumer climate in Germany were dealt a significant blow in August. After gaining for three consecutive periods, the indicator suffered a considerable decline.

Rolf Bürkl, an analyst at GfK, said:

An increase in the number of infections and the fear that coronavirus-related restrictions will be further tightened are creating uncertainty and consequently dampening the mood. The reduction in value added tax (VAT) which came into effect in Germany on July 1st may be boosting propensity to consume but has not yet been able to provide a stronger stimulus.

Whether or not this is just a temporary slowdown will depend primarily on what infection rates look like in future and the necessary measures to be put in place by policy makers.

Good morning, and welcomed to our live coverage of business, economics and financial markets.

There had been rumblings for a few days about Japanese Prime Minister Shinzo Abe’s health problems after repeated hospital visits, but this morning rumours appear to have bubbled over into news: multiple media reports say he will indeed resign.

The news prompted an immediate slump on Japan’s stock market, with the blue-chip Nikkei 225 index losing as much as 2%, while the safe-haven Japanese yen, which had been falling, jumped by about 0.5% to a session-high of 106.10 per dollar on the news before easing to about 106.22.

Reuters reported:

A person familiar with the matter said Abe, the nation’s longest serving premier, had decided to step down.

Public broadcaster NHK earlier said Abe, who has battled the disease ulcerative colitis for years, wanted to avoid causing problems for the government due to the worsening of his condition

Also coming up today, we have eurozone economic sentiment and consumer confidence figures at 10am BST, which could come in lower than expected after GfK’s measure of German consumer confidence came in with a negative 1.8 reading, compared to a positive 1.2 consensus expectation. More on this to follow.

And at 2:05pm BST Bank of England watchers’ attention will be fixed on a speech by Andrew Bailey, the governor.

He has a tough act to follow after Federal Reserve chair Jerome Powell signalled a permanent change in the US central bank’s inflation targeting regime, although the Bank of England has its own issues to face. Bailey could talk about work the Bank has done on the diminishing returns from quantitative easing.

The agenda

• 9am BST: Japan Shinzo Abe press conference (subject to change)
• 10am BST: Eurozone economic sentiment, August (previous: 82.3; consensus: 88.9)
• 1:30pm BST: Canada GDP, second quarter (previous: -8.2% annualised; consensus: -39.6% annualised)
• 2:05pm BST: Bank of England Andrew Bailey Jackson Hole speech