Goldman Sachs: LDP Election Unlikely To Alter Course

Goldman Sachs note that "on Monday, Japan's Liberal Democratic Party (LDP) will elect a new leader following Prime Minister Shinzo Abe's unexpected resignation over health issues late last month. Our economists expect few major changes in policy direction over the near term, and BoJ Governor Haruhiko Kuroda will remain in place. As a result, cross-border portfolio flows should continue to be the main driver of the Yen. So far in 2020, foreign asset demand from official sector investors has likely kept the currency weaker than it otherwise would have been. Japan's Government Pension Investment Fund (GPIF) has driven most of the outflows year-to-date, primarily via foreign bond purchases, but the overall pace of foreign asset investment has slowed since Q1. If outflows continue to slow, we expect further appreciation pressure on the Yen; in our view, it remains the only undervalued safe haven currency in a period of elevated economic and political uncertainty. Therefore, we still see attractive asymmetry in Yen longs and continue to recommend them as hedges for pro-cyclical portfolios, even though other G10 currencies top our list of favorites."