Japanese politics - Nomura flags two risks for the yen (both positive)

With the Japanese elections due in October Nomura on two yen risks:

The JPY outlook around Japan's politics is at a precarious juncture with a real chance that PM Suga loses the leadership of LDP coalition and an outside chance that the coalition itself loses the general elections leading to a regime change. Below we discuss two risk scenarios and potential market implications

• Scenario 1: PM Suga departs but LDP/Komeito remain in power under new leader Suga's popularity is very low( 28%) and his departure from LDP leadership could be medium-term JPY positive.
• Scenario 2: LDP/Komeito Lose General Elections A relatively low delta but even more underappreciated risk is if the LDP/Komeito coalition loses the majority. This could lead to a quick and sharp sell-off in USDJPY

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