Goldman Sachs: Election Uncertainty

Goldman Sachs "continue to think that cross-currents, including higher U.S. yields on the one hand and substantial undervaluation on the other, will keep USD/JPY within its recent range. But the LDP leadership election on September 29 could be a tactical risk as the likelihood of a run-off election has increased and policy uncertainty tends to weigh on the Yen - as it did a few weeks ago, prior to PM Suga's decision not to run. Taro Kono (current Minister in Charge of Deregulation and Vaccination) and Fumio Kishida (former Foreign Minister and LDP policy chief) appear to be the front-runners in the race, according to Bloomberg, and Sanae Takaichi (former Minister of Internal Affairs and Communications) remains the other likely contender. Our economists have outlined the candidates' respective policy proposals, which shows a fairly narrow gap across their economic and monetary policy agendas. Therefore, we expect any reaction in USD/JPY to be relatively modest and short-lived, and likely dominated by any additional volatility in U.S. long-end rates."