GS: Continuity Likely From Next Japanese PM, Limited Near-Term JGB Impact

Goldman Sachs note that "the LDP will hold their presidential election, with the new Prime Minister named on the 16th. Among the three leading LDP candidates, Yoshihide Suga, currently serving as the Chief Cabinet Secretary, appears to be the front-runner. Our economists have recently noted that were Mr. Suga to be elected, he is likely to maintain the current course of Abenomics on both fiscal and monetary dimensions. They also note, based on past pronouncements, that the new PM could encourage the BoJ to ease further in some scenarios, such as significant yen appreciation. In the near term, the JGB market is likely to take this transition in stride, and we see limited near-term impact on yields. Given our economists' expectations for a continued economic recovery, albeit at a slower pace, we see longer maturity yields moving gradually higher. The new consideration here could be the yen; were it to appreciate meaningfully, there may be greater pressure on the BoJ to ease, limiting some of the long-end steepening we are expecting."