Goldman Sachs: What To Watch As Abe Succession Battle Takes Shape

Goldman Sachs note that the "Japanese Prime Minister Abe unexpectedly resigned Friday, citing personal health concerns. An LDP leadership contest will now get underway. We will be focused on three main questions. First, how will the new PM approach monetary and fiscal policy (the first and second "arrows" of Abenomics)? Any adjustment to yield curve control in particular could have FX implications. Second, will we see more momentum to reform domestic industry (the third arrow)? Meaningful progress could support Japanese equities and possibly encourage unhedged portfolio inflows. Third, how will the leadership transition affect foreign relations, especially with Korea, China, and the US? Each of these issues has had some bearing on Yen crosses in recent years. Our highly-preliminary first take would be that the early leading contenders are unlikely to change the broad direction of monetary and fiscal policy, though corporate reform momentum may differ under certain candidates."